New Canadian immigration plan will shrink population, slow economy

The government’s plan to cut immigration and reduce the number of temporary residents will cause Canada’s population to decrease slightly in 2025 and 2026, after soaring by more than 2 million people over the past two years. This unprecedented immigration policy U-turn will significantly dampen economic growth over the next few years.

What you will learn:

• We project Canada’s population will decline to 41.1mn in 2026 from 41.3mn in 2024, the first contraction since Confederation in 1867. We expect the economy to grow but at a modest 1.5% pace during 2025-2027, on average. However, GDP per capita will recover more quickly since temporary residents tend to spend less, while government expenditures and private investment will likely see little change.
• A declining population will simultaneously reduce aggregate demand and the labour supply, so we believe the Bank of Canada will remain on course to steadily cut rates through the middle of next year.
• Continued weak hiring and still-strong population growth will likely lift the unemployment rate to more than 7% in early 2025 before sharply slowing immigration and fewer temporary residents amid improving job creation cause the unemployment rate to rapidly fall to around 6% in 2026, our estimate of the Non-Accelerating Inflation Rate of Unemployment (NAIRU).