You can have too much of a good thing — even GDP growth. And by leaning so heavily on immigration to power the economy, Canada has, for the first time ever, become ensnared in a “population trap,” according to National Bank Financial Inc.
In a new report, NBF said Canada’s outsized population growth has led to a phenomenon that usually only occurs in emerging markets: a growing population bumping up against the limits of the infrastructure needed to absorb that growth.
In this situation, the standard of living doesn’t rise “because the population is growing so fast that all available savings are needed to maintain the existing capital labour ratio,” NBF said in its report.
Over the past two years, the population has grown by more than 2 million people, headlined by a 1.2-million increase in 2023.
“To put things in perspective, Canada’s population growth in 2023 was 3.2%, five times higher than the OECD average. What’s more, all ten provinces grew at least twice as fast as the OECD, ranging from 1.3% in Newfoundland to 4.3% in Alberta,” the report said.
This level of growth “appears extreme relative to the absorptive capacity of the economy and the fact that our workforce is not aging faster than the OECD average,” it said.
The pressure generated by a fast-rising population on the housing market has been well documented, with supply falling well short of demand, elevating shelter costs and buoying inflation.
While the federal government has taken action to try and boost the housing supply, NBF said “policymakers need to go beyond simply targeting housing supply and recognize that above a certain number, population growth is an impediment to our economic well-being.”
Real GDP per capita has stagnated for the past six years, it noted, adding that this isn’t just a function of a lack of housing.
“In fact, the private non-residential capital stock to population ratio has been declining for seven years and is currently no higher than it was in 2012, while it is at a record high in the U.S.,” it said.
Federal policymakers need to calibrate their population growth targets against the broader capital stock constraints if productivity is to improve, the report suggested.
“At this point, we believe that our country’s annual total population growth should not exceed 300,000 to 500,000 if we are to escape the population trap,” it said.