How forced Ukrainian migrants influence EU economy
Half a billion dollars. This amount is spent every month by Ukrainian migrants in trade networks of EU countries (Photo:www.dw.com)
The inflow of labor and the spending of Ukrainian migrants abroad will have a long-term positive effect for the EU. But Ukraine is losing human capital — consumers, taxpayers, children.
The National Bank of Ukraine (NBU) has published a staff discussion note on how Ukrainian migrants, who were forced to leave their homes over Russia’s full-scale war against Ukraine, influence the EU economy. NV Business cites eight noteworthy figures from this analysis.
About 4.5 million Ukrainians live in European countries
According to the UNHCR data, as of November 15, 2022, some 7.6 million Ukrainian citizens remained abroad because of the war.
“An increase in labor force and Ukrainian migrants’ spending abroad are positive for the economies of host countries, although a large wave of migration created a number of challenges, including for state finances,” the NBU said.
Three million Ukrainian citizens ended up in Russia and Belarus, partially due to their forced abduction to the former.
Ukrainians spend up to $2 billion a month abroad
The net fiscal effect for Europe will be positive in the long run, as Ukrainians are actively integrating into the European labor market and are paying taxes.
“Spending by Ukrainian migrants supports the economies of recipient countries primarily in the form of private consumption (partially offsetting the adverse effect the war in Ukraine has on real private consumption in the EU),” the NBU said.
"In particular, Ukrainians’ expenses abroad more than tripled in 2022 compared to the previous year, reaching $2 billion per month.”
Also, spending on Ukrainian migrants stimulates public consumption, particularly in the fields of housing, healthcare and education infrastructure (taking into account the large percentage of children, which ranges from 28% to 44% in various countries).
There are 1.5 million Ukrainians in Poland
As of November, the largest number of temporary protection statuses – nearly 1.5 million – were granted to Ukrainians by Poland, more than one million by Germany, and approximately 450,000 by Czechia. More than 100,000 Ukrainians are also registered in Italy, Spain, Bulgaria, the United Kingdom, and France.
The REACH survey held at the Polish border showed that the main factors for choosing the destination country were: family or friends in the destination (39%), proximity to Ukraine (31%), and advice received at reception centers (17%). However, macroeconomic and labor market conditions are likely to play a more important role in migrants’ choice of countries over time.
According to the UNHCR survey, 87% of migrants are women with children, and 65% of women are of working age, aged from 18 to 59. About 70% of respondents have a higher education.
“Average monthly volumes of cash withdrawals decreased noticeably from $990,000 in March–June to $580,000 in July–October,” the report reads.
“This was facilitated by both migrants applying for and receiving social benefits in recipient countries and the NBU introducing limits on withdrawing foreign currency cash abroad, which also helped stop the so-called card tourism. As expected, migrants withdrew the largest amounts of cash in Poland. However, it should be noted that, before FX restrictions were imposed, cash withdrawals were also significant in other countries bordering Ukraine – particularly, in Slovakia and Romania.”
Every month, Ukrainians spend hundreds of millions of dollars in retail chains abroad
With the introduction of restrictions on cash withdrawals, the overall volume of transactions with cards abroad decreased. On the other hand, the volume of operations in retail chains did not experience a significant decrease. Thus, their volume decreased from a peak value of $770 million in May to $560 million in October.
The largest volumes of transactions in retail chains using Ukrainian cards were recorded in Poland (28% of the total volume) and Germany (10%). Other sources of spending by Ukrainians abroad include cash currency exported from Ukraine, state support programs, and labor income in host countries. With the growth of in employment of Ukrainians abroad, it is labor income received in host countries that has begun to determine the lion’s share of financing migrant expenses.
Migrants from Ukraine increase Poland’s GDP by more than 1 p.p. every year
Strzelecki et al. (2022) studied the economic consequences of Ukrainians' labor migration to Poland from 2013 to 2018. The increase in the labor force then was about 0.8% per year, and the contribution of Ukrainian migrants to annual GDP growth was 0.5 percentage points.
“Using OECD calculations of Ukrainian migrants’ contribution to European countries’ labor force and estimates by Strzelecki et al. (2022) of their impact on GDP growth in Poland, an assumption was made regarding the impact of migration from Ukraine on the economies of other countries by means of extrapolating effects of the impact based on the number of migrants,” the NBU said.
“As a result, the additional contribution to annual GDP growth in Czechia, Poland, and Estonia will reach around 1.2 p.p. per year, and migrants’ contribution to GDP of Hungary, Latvia, Slovakia, Lithuania, and Romania will be close to 0.8 p.p.”
The emergence of Ukrainian migrants in Estonia, Poland, and Czechia in 2026 will boost the output of goods in those countries by 2.3%
According to the calculations provided in the study based on estimates from an IMF research study (2020) and surveys by the UN and the Razumkov Center, all other things being equal, the impact of Ukrainian migrants will push up output in Estonia, Poland, and Czechia by 2.2%–2.3% compared to the baseline scenario without migration, and by 0.6%–0.65% in Germany.
The EU may spend up to EU 70 billion a year on Ukrainian migrants
Bird and Amaglobeli (IMF, 2022) estimated the short-term fiscal impact of Ukrainian migrants on economies of EU countries at around EUR 30-37 billion ($32-40 billion), or 0.19%-0.23% of the EU’s GDP. In their calculations, researchers assumed the number of migrants of 4.1-5.0 million people and average costs per one migrant at EUR 11,577 ($12,265) (OECD data for 2017 adjusted for inflation). In turn, Darvas (2022) suggests a broad range from EUR 9,000 to EUR 25,000 ($26,500) (in prices of 2022) of government expenditures per migrant per year. If two-thirds of Ukrainians currently registered in the EU require state support, total expenditures will range from EUR 26.4 billion ($28 billion) to EUR 73.3 billion ($77.5 billion) per year. That said, countries bordering Ukraine and Baltic countries will bear the largest expenditures. According to calculations by EIB (2022), 9% of GDP could be spent on migrant adaptation by Lithuania, more than 7% of GDP by Estonia, and 4%-6% of GDP by Hungary, Poland, and the Czech Republic.
The EU labor force will increase by 1.3 million people at the expense of Ukraine
The integration of Ukrainian migrants will have an impact on the indicators of the labor market of the recipient countries. Ukraine's geographical and cultural proximity to Europe, the presence of the diaspora, and the status of temporary protection will contribute to increasing the participation of migrants in the labor force.
“In particular, the European Central Bank expects 25% to 55% of Ukrainian working-age migrants to participate in the euro area’s labor force over the medium term,” the NBU reported.
“That said, the EU’s labor force will grow by 0.2%-0.8%, or by 0.3-1.3 million people.”
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