Theo Argitis: Canada doesn’t have a growth problem—it has an unemployment problem

Probably because the central bank’s growth forecast hinges on a critical assumption: the mass influx of new immigrants and non-permanent workers entering the country will find employment. That remains a big if.

With the population increasing by 2.3 million over the past two years—pushing population growth to an off-the-charts annual growth rate of 3 percent—the labour market faces immense pressure to absorb these new workers. The jobless rate—now at 6.4 percent, up from 5 percent at the end of 2022—reflects the escalating challenge.

While the Bank of Canada expects working-age population growth to slow to about 1.7 percent annually in 2025 and 2026, this is still well above average levels of about 1.3 percent over the past 50 years.

Based on my calculations, the central bank’s forecast seems to assume the economy will generate more than 1 million new jobs between now and the end of 2026. This is a bold prediction, especially given the current interest rate environment. Despite recent cuts, rates remain restrictive, with the policy rate at 4.5 percent. Sticky inflation is prohibiting the central bank from adding stimulus to the economy. All they are doing is gently taking the foot off the brakes.

Which makes the projected recovery even that much more remarkable.

Despite worries about productivity, the nation’s economy is benefiting from some important tailwinds, including robust global growth and the game-changing opening of the Trans Mountain pipeline that is poised to boost exports and foster investment. There’s also the natural rebound effect that typically comes after a period of sluggish growth.

We’ll get growth. Whether it will be enough to bring down joblessness is another matter. How policymakers react to stubbornly high unemployment in the face of an expanding economy may be the next challenge on the horizon.