German border checks won’t hit economy for now, economists say
2024.09.17 07:46
By Maria Martinez
BERLIN (Reuters) – Temporary checks on Germany’s western and northern borders to combat irregular migration will not hit Europe’s largest economy beyond creating delays and complexities for companies already struggling with a downturn, economists say.
However, economists warned that the impact would be more severe if the temporary checks led to other further moves limiting free movement in the European Union’s borderless Schengen area.
Tighter border checks came into effect on Monday at Germany’s land borders with France, Belgium, Luxembourg, the Netherlands and Denmark for an initial six months, marking a further setback to free movement within the European Union.
“It looks as if this is a largely symbolic move designed to signal a tougher line on illegal immigration but the measures are fairly small-scale and not likely to impact business much,” said Andrew Kenningham, Capital Economics’ chief Europe economist.
He added that if this proves to be the start of a substantial move towards reintroducing land borders in the EU, it could be very significant because of the impact on transportation and as a major irritant in internal EU politics.
German retailers and logistics companies fear traffic jams, delays and higher costs.
Berenberg’s chief economist Holger Schmieding argued that slight delays in deliveries will not make a huge difference because industry is not running at full capacity.
Germany’s industry, grappling with high energy costs, weak global demand, a disruptive shift towards net-zero economies, and growing competition from China, continues to struggle, as the latest HCOB Purchasing Managers’ Index (PMI) showed in August.
“It’s a hassle, but the economic impact will likely be small,” Schmieding told Reuters.
The new measures could add to costs, Schmieding said, but probably not to the extent to be visible in the overall level of consumer prices.
Much will depend on how strict and detailed the controls are, said ING’s global head of macro, Carsten Brzeski,
“But a reversal of Schengen will eventually not be without a negative impact on the economy,” Brzeski told Reuters. “An economy that is so dependent on trade.”
BAD TIMING
Foreign trade is likely to remain subdued for the foreseeable future and a turnaround in industry is not in sight. The temporary border controls add another layer of complexity and uncertainty for business at a challenging moment.
The German economy contracted in the second quarter, sparking fears of another recession, marked by two consecutive quarters of contraction.
“It is an unfortunate timing. Our economy is already on the brink of a recession, companies are suffering a loss in productivity and are burdened by higher wages,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
