Gold inflows surge to highest level since August 2015 as the metal remains one of the best performing assets year-todate. Oil inflows continue for the eighth consecutive week as investor’s position for continued recovery. Inflows into broad commodity baskets rose to a five week high as negative sentiment towards the beleaguered asset class begins to thaw.…
find that the US equivalent fell to 53.5 (dollar strength may be redistributing growth). Nor is it because I have been overweight equity-like assets during the recent sell-off (even if we did cut positions in December — see Reducing and diversifying risk).
No the shame to which I refer is at the collective reaction of the UK to the refugee crisis, in particular the initial offer to welcome only 20,000 of them over four years. However, the UK’s lack of generosity relative to Germany, say, may be justified on economic, if not moral, grounds.
Out of a starting population close to 23 million, 4.6m Syrians are now reckoned to be refugees and 6.6m are displaced within Syria (see this from World Vision). As reported here by the UN, most of the refugees are based in countries bordering Syria (2.5m in Turkey and 1.1m in Lebanon, for example) and only 10% have fled to Europe. Interestingly, only 48% of the 1.1m arrivals in Europe since the beginning of 2015 were from Syria (21% were from Afghanistan and 9% from Iraq – UN).
For sure, the UK is among the leaders when it comes to providing aid for those staying close to Syria (last week it pledged to double its commitment to around $1.75bn over four years, compared to $3bn from the EU, $2.6bn from Germany and $925m from the US – see FT). So why not accept more refugees?
Apart from growing concerns around immigration in general, is it simply that the UK has less need of an inflow of young workers than Germany, as suggested by Figure 1?
Many countries have ageing populations — UN estimates suggest that by 2050 the median age in Japan will be 53.3, up from 32.6 in 1980 and 46.5 in 2015. This suggests that fewer workers (those aged 15-65) will be there to support more dependents (those aged less than 15 and more than 64). The ratio between “dependents” and “workers” gives the UN Dependency Ratio, which in the case of Japan is projected to rise from 64.5% in 2015 to 95.1% in 2050 (each Japanese worker will need to support almost a full other member of society).
Germany is not far behind (with a median age of 51.4 and a dependency ratio of 81.1% in 2050, according to UN estimates). By the way, the total population is forecast to decline from 80.7m in 2015 to 74.5m in 2050. The contrast with Syria is striking (current median age of 20.8 and dependency ratio of 70.0%, becoming 33.7 and 49.8%, respectively, in 2050), which gives an idea of the demographics of the refugees.
An inflow of young workers could be just the tonic the ageing German population needs, especially with unemployment at record lows and the country even seeking to entice young British workers (see Come to Germany to work and find love). Figure 1 suggests the UK has fewer demographic issues (in fact the population is expected to climb by about 10m by 2050), while Italy faces an even bigger problem than Germany.
Apart from longer term demographic benefits, we should also look at more immediate cyclical positives. The existence of a large current account surplus in Germany (see Figure 2) is the result of excess savings (versus investment). Taking money from the existing citizens that are not spending it (low marginal propensity to consume) and giving it to those who are arriving with nothing (probably high marginal propensity to consume) is likely to reduce the overall savings ratio and boost consumer spending. The fact that the German government is running a surplus argues for the use of deficit spending — why not take advantage of negative bond yields to bring in the workforce that could help finance the next generation of pensioners?
The UK also has a savings imbalance but in the wrong direction – we do not save enough and the last thing this economy needs is to be pushed even further into disequilibrium (see Figure 2). Sweden, the other generous home for refugees, is somewhere between – it has as little to gain as the UK from a demographic perspective but could benefit from a reduction in its savings excess. Italy needs the demographic boost more than Germany (Figure 1) and has some, but limited, ability to pay now (Figure 2).
So, the shame at the attitude of the UK government is tempered by the fact that Germany and other countries are more in need of an influx of young workers and that the European economy could be helped by the reduction of savings imbalances were Germany to follow through on the brave stance taken by Angela Merkel. Wage inflation would be tempered, the ECB could stay looser for longer, growth would be higher and the European economy would have less imbalances and be more stable. What’s not to like?