Cuts to immigration in Canada could slow economic growth

Article content

Canadas population growth is about to go from warp speed to a standstill.

After leading in population growth in recent years, Canada will admit approximately 20 percent fewer permanent residents by 2025, the federal government announced last week. Numbers will continue to decline by about 4 percent per year until 2027.

Ottawa also set its first target for temporary immigrants, reducing the number by about 446,000 by 2025 and 2026.

Article content

If it meets these targets, Canada’s population will actually shrink for the first time in figures dating back to the early 1950s – by 0.2 percent in 2025 and 2026, before growing again in 2027.

“To say that immigration has become one of the most important economic problems in Canada would be an understatement; given its large and widespread impact, it could even be at the top,” said Robert Kavcic, senior economist at BMO Capital Markets.

Opinions differ about these consequences.

Stephen Brown of Capital Economics said the new targets caused their economists to tear up their forecasts GDP growth of 2 percent in 2024 and 3 percent in 2025.

Immediately stagnant workforceAccording to him, GDP growth is unlikely to exceed 1 percent over the next two years and even that would require a jump in productivity growth.

The biggest risk, he said, is to… residential investmentswith the increase in new homes in purpose-built rental buildings “likely to go in the opposite direction” as demand falls.

Others are more optimistic. Royce Mendes, head of macro strategy and economist Randall Bartlett at Desjardins Group, said the impact on the economy may not be as severe as it seems. Wage growth could settle at higher levels with fewer workers in the economy housing affordability should improve, leaving households with more money to spend elsewhere.

Article content

Article content

BMO’s Kavcic said you could argue that the increase in temporary residents in recent years has diverted resources to housing and allowed companies to use cheap labor instead of improving productivity.

“While this move will dampen demand… we need to dispel the narrative that slower population growth will be bad for the economy,” he said.

Bank of Canada Governor Tiff Macklem said the central bank would revise its growth forecasts in light of the announcement. Are most recent prediction estimates population growth at 1.5 percent and GDP growth at 2.1 percent in 2025 and 2.3 percent in 2026.

The new immigration targets give Desjardins even more confidence in his “softening” forecast that the Bank of Canada will cut interest rates to 2.25 percent in 2025.

But Capital Economics thinks the changes could prompt the bank to cut rates lower than it otherwise would have – “especially if an upcoming election brings the opposition Conservatives to power and they double down on these restrictions on immigration , something we would not rule out.” Brown said.

Sign up here to receive Posthaste directly in your inbox.

Article content

One bit of news from last week’s annual meeting of the International Monetary Fund that you may have missed is that Liechtenstein became the 191st member of the IMF.

This small country, just 160 square kilometers in size, located in the Alps between Austria and Switzerland, is among the smallest European states – but although its geography is small, its economy is mighty.

At $197,000 per year, Liechtenstein has one of the highest per capita incomes in Europe, after Monaco.

The country has a globally competitive manufacturing sector ranging from factory construction to dental instruments, and invests as much as 6 percent of its GDP in research and development. The financial sector accounts for 20 percent of gross domestic product.

A distinguishing feature of the economy is that the number of employed people in Liechtenstein is greater than the number of inhabitants. About 40,000 people live in the country, but 42,500 work there, with half of the workforce commuting daily from Switzerland and Austria. The employment rate of 76.1 percent is higher than that of the European Union and the unemployment rate is less than 2 percent.

Article content

Oh, and Liechtenstein has only 1,500 civil servants, less than 4 percent of the population and significantly lower than the EU average of around 17 percent.

– Facts collected by IMF economists Rodgers Chawani and Kazuko Shirono

• Income: First Capital REIT, PrairieSky Royalty Ltd., Ford Motor Co.

Article content

McLister on mortgages

Want to know more about mortgages? Mortgage strategist Robert McLister’s Column Financial Post can help you navigate the complex sector, from the latest trends to financing opportunities you don’t want to miss. Check his too mortgage interest page for Canada’s lowest national mortgage rates, updated daily.

Financial post on YouTube

Visit the Financial Post YouTube channel for interviews with Canada’s leading experts on business, economics, housing, the energy sector and more.

Today’s Posthaste was written by Pamela Skywith additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

Do you have a story idea, pitch, embargo report or suggestion for this newsletter? Email us at [email protected].

Bookmark our website and support our journalism: Don’t miss and add the business news you need to know financialpost.com to your favorites and sign up for our newsletters here

Article content