Canada: Non-permanent Residents Still Stoking Population Growth, But Don’t Expect That to Continue

The implications of decades-high population growth have not changed. Skyrocketing headcount gains muddy the macroeconomic and monetary policy waters. On the one hand, they stimulate demand for goods and services and potentially inflation at a time when the Bank of Canada is still trying to bring price pressures to heel. But given how much labour market integration has improved among newcomers—the primary driver of recent gains—it’s hard to argue these population gains can’t increase the labour supply over time. That can help address labour shortages and suppress wage-push inflation. The recent demographic explosion has also masked underlying economic weakness. Real GDP per capita has now fallen in six consecutive quarters, something we don’t usually see outside recessions (graph 1).

What has changed since the last release is the policy environment, and the outlook for population growth is now decidedly more pessimistic. Ottawa’s announcement last week External link. that it would cut the national temporary resident population over time will remove the principal source of recent demographic gains. As such, it will weigh on Canadian economic growth in the years ahead External link.. By province, we expect the most significant drags to occur in Ontario and BC External link., which alongside Quebec continued to be the most reliant on temporary migration (graph 2). That said, the lower number of NPRs is also likely to provide some relief to the ongoing affordability crisis while modestly boosting growth in real GDP per capita and real wages. 

Also of interest: migration from Ontario to other provinces looks to be easing (graph 3). We’ve highlighted movement out of Ontario—which partly reflects younger residents seeking more affordable housing elsewhere in Canada—many times before. Still, net interprovincial outflows from Canada’s largest province remain near record highs. The province which has benefitted most from the interprovincial population flows is Alberta, dramatically reversing the outflow observed from 2016 to 2021. 

Today’s release doesn’t change our view that the Bank of Canada will only begin cutting interest rates in June of this year. For now, the central bank is likely to put more weight on easing inflation, falling per-person output, and the fact that we still haven’t felt the full impact of rate hikes already completed. But after yet another quarter of moribund per-capita GDP and a significant policy change on the horizon, questions about Canada’s longer-run economic prospects abound.