OTTAWA, Ontario, Dec. 06, 2024 (GLOBE NEWSWIRE) -- The federal government’s revised immigration policy, which aims to dramatically reduce the number of non-permanent residents in Canada, will significantly slow economic growth, according to new research from The Conference Board of Canada.
“While the recent surge in non-permanent residents has placed significant pressure on the economy, the government’s response may be too drastic,” said Pedro Antunes, Chief Economist at The Conference Board of Canada. “Given Canada’s fragile state of recovery, a steadier approach would provide a more stable path forward.”
In October 2024, the government announced a plan to reduce non-permanent residents by over 900,000 within two years, a much more aggressive target than proposed in March. This policy shift followed an unprecedented population surge in 2023 and 2024, which placed considerable strain on housing, infrastructure and public services. While this rapid reduction will not trigger a recession, it is expected to significantly dampen Canada’s growth, lowering real GDP by $7.9 billion in 2025 and $16.2 billion in 2026.
The abrupt reduction in population will simultaneously reduce economic supply and demand, generating an economic impact different from a typical slowdown. As Canada’s population shrinks, both employment and unemployment will decline. However, the contraction of labour supply will outpace the reduction in demand, resulting in a tighter labour market and increased pressure on employers to fill positions.
The decrease in population and labour income will also lead to a sharp decline in real consumer spending – the chief contributor to the projected drop in GDP. Despite this, per capita spending will rise, as job losses will be concentrated in lower paying roles, while wage gains outpace inflation.
At the same time, the reduction in population will ease pressures on Canada’s housing market. Housing starts will decline, but the overall reduction in housing stock will be relatively small compared to the population loss. As a result, the strain on housing supply will ease, and softer demand will help stabilize home price inflation.
Overall, while the influx of non-permanent residents overwhelmed Canada’s economy, the government’s hasty course correction introduces a new set of challenges, potentially straining employers, exacerbating labour shortages, and impacting near-term economic performance. A more gradual approach to rebalancing labour market dynamics could better mitigate the economic risks and facilitate a more stable recovery.
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