Canada: Population Boom Continues, But for How Long?

Today’s data didn’t come as a surprise, as information from the Labour Force Survey External link. showed that Canada’s working-age headcount was still advancing at a torrid pace through August 2024. And once again, net non-permanent residents (NPRs) made up the vast majority of the gains. Accordingly, our core view on population growth’s implications hasn’t changed much. Clearly, population gains have provided a tailwind to the Canadian economy during a challenging period of high borrowing costs. That’s both because of the sheer number of new consumers the recent surge has created, and because newcomers have helped fill job vacancies External link.. But Canada’s demographic boom is masking underlying economic weakness. Canadian GDP per capita—the broadest measure of our standard of living—has now declined in seven of the past eight quarters (graph 1) and will likely do so again in Q3.

We haven’t seen much evidence to date of Ottawa’s plan to reduce the number of NPRs to 5% of the Canadian population over the next three years. The number of NPRs residing in Canada exceeded 3M on July 1, 2024, and contributed significantly to population growth in all provinces (graph 2). To the extent that federal plans go ahead, there’s downside risk External link. to Canada’s economy and public finances. At the provincial level External link., downside risk is most acute for Ontario and BC, which are particularly reliant on NPRs. However, any NPR reduction may not be as significant as Statistics Canada’s latest forecasts assume, as projections from the latest Monetary Policy Report External link. and recent fiscal plans released in Alberta and BC External link. suggest.

Migration from Ontario to other provinces—which we partly attribute to younger residents seeking more affordable housing—continues to cool. This may reflect a decline in telework arrangements, though net flows from Canada’s largest province remain at their highest level since the 1980s (graph 3).

Today’s release doesn’t change our view that the Bank of Canada will reduce its policy interest rate by 50 basis points in October. A softening labour market, inflation hovering near its target, and persistently falling output per person all suggest borrowing costs don’t need to be as restrictive as they are currently.