In each EconMinute, Business Council of Alberta economist Alicia Planincic seeks to better understand the economic issues that matter to Canadians: from business competitiveness to housing affordability to living standards and our country’s lack of productivity growth. She strives to answer burning questions, tackle misconceptions, and uncover what’s really going on in the Canadian economy.
Last week it seemed the biggest economic news would be the Bank of Canada’s interest rate announcement—a whopper of a cut—but it was quickly overshadowed by the federal government’s equally big, and less expected, cut to immigration.
Cuts in immigration (as outlined in the Immigration Levels Plan) are expected to bring the country’s extraordinary population growth of over 3 percent in the last couple of years—amounting to over a million more Canadians a year—down to essentially zero in 2025 and 2026. While some provinces will still grow thanks to a younger population or movement from across the country, older ones, and those losing people to other regions, will see an outright decline.
Graphic credit: Janice Nelson.
How this sudden drop nationally will impact Canada’s immediate economic trajectory is unclear, but the strategy to get there could come at the cost of lost economic potential in the future.
In the short-term, the governor of the Bank of Canada has said that the government’s new target for population growth is not sufficiently different from what they had anticipated that it would change their expectations for inflation or future interest rate cuts. Whether that ends up being true, or whether this is good or bad for the economy and individual people, is less clear. The scale of the swing, from a huge influx to nothing, is something Canada hasn’t seen in at least 60 years. How businesses and markets will respond to the shock is unknown.
In the longer term, Canada’s economic potential could be dampened, because of how population growth is set to be reduced.
Primarily, growth in the population will be paused due to an enormous decrease in the number of temporary residents from about 3 million today down to just 2 million by 2027, amounting to a reduction of around 450,000 per year. A reduction in new permanent residents will also contribute but much more modestly by comparison: around 100,000 fewer new permanent residents per year.
While it makes sense to bring the population of temporary residents closer to historical levels, the snag is that the reduction will, in part, come from transitioning many of those individuals to permanent residency. The Levels Plan notes that temporary residents will account for “more than 40 percent of overall permanent resident admissions in 2025.” After all, they’re already here; many are already working and have begun to establish roots.
The result, however, is that at least 40 percent of the now more limited spots available for permanent residency (395,000 in 2025) will be granted based on whether a candidate is already in Canada rather than who brings the most value to the Canadian economy, longer-term. Though it’s difficult without more information to determine the extent of the impact, many current temporary residents work in lower-skill positions, meaning that higher-skill candidates—the engineers, scientists, entrepreneurs, and skilled tradespeople—who don’t yet live here could be passed over as a result.
A version of this post was originally published by the Business Council of Alberta at businesscouncilab.com.
Alicia Planincic is the Director of Policy & Economics at the Business Council of Alberta. She regularly provides insight and analysis on the Canadian economy, public finances, labour markets, equity and social mobility, and public policy.
