Canada: Population Growth Surge Continues to Complicate Canada’s Economic Picture

Recent trends in Canadian population growth persisted in the second quarter of 2023. Once again, the country’s annual population growth attained a rate not seen since the 1950s (graph 1). Almost all the gains came from international migration, with more than 60% via the net non-permanent resident category. Admissions under this stream, which includes temporary foreign workers and international students, continued to be responsible for the bulk of headcount advances in many provinces.

Persistently strong contributions from net non-permanent resident admissions still suggest downside risk to economic growth going forward. During past periods of economic slowdown, we’ve seen temporary foreign worker program usage decline as the expansion slows and labour demand diminishes. As such, the ongoing population-assisted economic expansion could be expected to ease in the coming months.

The data reinforce the provincial growth outlook External link. This link will open in a new window. we highlighted last quarter. On the one hand, provinces such as Ontario and BC could be susceptible to softer economic and population gains in the coming quarters given that their headcount climb has been reliant on temporary migration. Ontario also continued to see near-record movement to other provinces (graph 2)—likely in response to stretched housing affordability External link. This link will open in a new window.—though outflows moderated and were dwarfed by gains from international migration. By contrast, Alberta and PEI’s strong population growth—with significant contributions from many sources—bode relatively well for their expansions.

We continue to believe that surging population growth and improving immigrant labour market integration are positive for Canada’s long-run economic prosperity, but that they also complicate monetary policy. Skilled newcomers can help fill job shortages, thereby reducing potential wage-push inflation. However, near-record rates of population growth can also contribute to outsized employment growth, that could put upward pressure on consumer demand and ultimately drive further price increases. Skyrocketing population growth also reinforces the need to boost the housing supply, particularly in an environment of severely stretched housing affordability. Our team recently laid out a series of policy recommendations External link. This link will open in a new window. on this front.

These data don’t change our call that the Bank of Canada will hold interest rates steady at its October meeting. The Canadian economy has yet to feel the full effects of sharply higher interest rates, and there is mounting evidence that acute job vacancies built up during the pandemic are easing. But population gains this persistently strong will no doubt continue to play a large role in our country’s economic prospects, both in the shorter- and longer-term. Policymakers and market watchers need to continue to pay close attention.