Our Global Chief Economist explains what stricter immigration
policy in key markets around the world could mean for economic
growth and inflation.
----- Transcript -----
Seth Carpenter: Welcome to Thoughts on the
Market. I'm Seth Carpenter Morgan Stanley's Global Chief
Economist. Along with my colleagues, bringing you a variety of
perspectives, today I'll discuss a key driver of the global
economy, migration.
It's Monday, August 19th at 10am in New York.
Migration has always been an important feature of the global
economy.
Not surprisingly, migrants typically move from lower income
countries to higher income countries and for more than 50 years,
it has added something like three-tenths of a percent per year to
the growth of high-income economies. But in recent years,
migration trends have been hit by a couple of major events.
One was COVID. International travel restrictions during the
pandemic slowed, or stopped, migration for a while. Despite a
strong rebound over the past two years, many economies still have
not fully recovered to pre-COVID migration trends. Another is
geopolitical unrest. The Ukrainian refugee crisis, for example,
is the largest population displacement in Europe since WWII with
increasingly global repercussions.
But how does immigration affect economies? One way that I frame
the discussion is that immigration can boost both aggregate
supply and aggregate demand. It's likely some of each -- and the
relative importance of those two affects how inflationary or
disinflationary the phenomenon is.
In 2023, with a very large influx of immigrants into the US labor
market, the economy was able to grow rapidly while still seeing
inflation fall. The supply effect dominated the demand effect. In
Australia, by contrast, with more of the immigrants in school or
otherwise not in the labor market, prices -- especially for
housing -- have gone up because demand was relatively more
important.
But some of the effects will only play out over time. Across many
developed market economies, economic activity has risen less than
population, meaning that measured productivity is lower. But we
think that is just a lagged effect of the response of capital
investment to the rise in labor. Over a longer time horizon,
immigration can also offset demographic declines. Since 2021
population growth in many high-income economies has turned
negative, if you exclude immigrants. Sustaining economic growth
and managing government debt loads are made much more difficult
with an aging, and then declining population, as a baseline.
We assume that immigration will revert to pre-COVID trends in
2024 and [20]25 for most economies. This delta is largest for the
economies with the highest immigration rates, like Canada or
Australia; but for other economies, policies, cultural norms,
those will determine the path for immigration.
The key, however, is that immigration can be a critical component
of demographic trends. In the US, the best estimate of net
immigration was about 3.3 million people in 2023, and we assume
it will taper from there to something closer to 2.5 million in
2025. That addition to the labor market created what Fed Chair
Powell called “a bigger, but not tighter economy.”
For people following the economy in real time, the extra
availability of labor is also why we have argued that the rise in
the unemployment rate over the past year or so is not the
harbinger of recession that it has been in past cycles.
Now, looking ahead, one key risk to our forecasts -- well
everywhere around the world -- would be an abrupt tightening in
immigration policy that causes the flow of workers to fall
quickly or even end. Such a scenario would imply a much sharper
economic slowdown and possibly higher inflation in the economies
where the supply boost has dominated. That's yet another reason
why elections and government policy remain key to the economic
outlook.
Well, thanks for listening. And if you enjoy the show, please
leave us a review wherever you listen to podcasts and share
Thoughts on the Market with a friend or a colleague today.
Kommentare (0)
Melde dich an, um einen Kommentar zu schreiben.