Immigration Significantly Boosted Europe's Economy After Pandemic, According to ECB President Lagarde

Christine Lagarde, President of the European Central Bank, states that an increase in foreign-born workers has aided Europe's economic recovery post-pandemic by lowering inflation and supporting growth. However, she warns of potential political challenges to immigration.

European Central Bank President Christine Lagarde highlighted the role of foreign-born workers in reducing inflation in Europe post-pandemic. Speaking at a Federal Reserve symposium in Jackson Hole, Wyoming, Lagarde noted that the increase in foreign workers helped maintain economic growth without significant slowdowns. This influx allowed companies to meet rising demand after the pandemic, contributing to lower inflation rates.

Lagarde pointed out that Germany's GDP would have been approximately 6% lower than its 2019 level without foreign workers. Similarly, Spain's robust economic recovery was significantly aided by foreign labour. These comments align with economists' views that foreign workers enabled businesses to expand output and manage increased demand following pandemic-related stimulus measures.

Impact of Foreign Labour on Economic Growth

The rise in immigration has not been without controversy, sparking political backlash in both Europe and the United States. Despite this, Lagarde suggested that migration could play a vital role in addressing labour shortages as native populations age. However, she warned that political pressures might restrict future immigration flows.

Lagarde also mentioned other factors contributing to economic stability, such as a decline in inflation-adjusted wages and companies retaining more workers. Additionally, an increasing number of elderly individuals have joined the workforce, supporting steady growth even as interest rates rose.

Labour Force Dynamics and Inflation

Historically, higher borrowing costs have often led to slower economic growth and increased unemployment. However, this trend did not materialise when the ECB raised its key rate in 2022 and 2023. Lagarde noted that foreign-born workers made up just 9% of the EU's labour force in 2022 but accounted for half of its growth over the past three years.

The participation of older individuals in the workforce also played a crucial role. Without their involvement, the unemployment rate in eurozone countries would be higher—6.6% instead of the current 6.3%, according to Lagarde.

Global Trends in Workforce Growth

Kazuo Ueda, governor of the Bank of Japan, shared similar observations regarding Japan's workforce trends since the pandemic. Although foreign-born individuals constitute only 3% of Japan's workforce, they have contributed to half of its recent growth. This mirrors the situation in Europe and underscores the global significance of foreign labour in economic recovery efforts.

The integration of foreign-born workers into the labour market has been instrumental in stabilising economies during challenging times. Their contribution has helped mitigate potential recessions and maintain employment levels despite rising interest rates.

With inputs from PTI