While immigration has been a key driver of Canada’s recent population and economic growth, it also represents a key uncertainty for the years ahead, says a new report from Desjardins Group.
According to the report, an influx of temporary foreign workers and students has been the primary source of recent population growth, alongside the migration of permanent residents, and is expected to remain the key driver of the demographics that underpin the economy.
“The population projection is foundational to Canada’s economic outlook, as it’s made up of the consumers and workers who will drive future economic activity and government revenues,” the report said, adding that this factor “is now more uncertain than ever.”
The recent influx of temporary foreign workers was driven by a spike in labour demand, and government policy shifts which made it easier for employers to import temporary workers.
As that demand has eased in a slowing economy, it’s expected that the flow of non-permanent residents will also slow. Yet, the report noted that these trends can also shift abruptly in response to government policy changes.
“Some of this is playing out in real time now, with new restrictions on foreign student admissions and work permits announced recently,” it said.
If the curbs on foreign workers, coupled with an economic slowdown, combine to halt the flow of non-permanent residents, this would slow projected population growth from a forecast annual average of 1.8% between 2023 and 2028 to 1.5%, the report said.
In turn, this would weigh on the economic forecast, leading to a longer, deeper recession in 2024, and a softer recovery, it suggested.
Alternatively, stronger-than-expected admissions of non-permanent residents would boost population growth, stoking both real and potential GDP growth expectations, “which would lead to a milder economic slowdown than currently anticipated, possibly avoiding a recession altogether,” the report said.
However, this stronger growth would likely also bring renewed inflationary pressures, increased housing affordability strains, and would weigh on provincial finances.
“It’s anyone’s guess how population growth will advance in Canada. In our opinion, the big wildcard is net non‐permanent residents, who have been the primary driver of the recent surge in Canada’s population,” the report said.
“While we anticipate the flow of these newcomers to slow, how much it slows will have material impacts for Canada’s economic growth, both in the near and long term,” it said.
“As such, caution is warranted on the part of policymakers to minimize the economic downside of slowing the pace of newcomer arrivals too quickly,” it said, “but it’s not an easy balance to strike.”