Economic questions loom as demographics shift

Booming immigration, particularly temporary immigration, continues to drive Canada’s record population growth — which is helping to mask economic weakness, while also stoking inflation.

Statistics Canada estimated that Canada’s population hit 40.8 million as of the start of 2024, up by 1.27 million from the start of 2023. This represented the highest growth rate since 1957, it said.

In the fourth quarter, the population rose by 0.6%, an increase of 241,494 people, which is the strongest fourth quarter since 1956, StatsCan noted.

“Skyrocketing headcount gains muddy the macroeconomic and monetary policy waters,” said Desjardins Group in a research note.

“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,” it said.

“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,” it added.

Indeed, StatsCan reported that most of the population growth in 2023 came from temporary immigration, as temporary workers flooded in.

The overall population growth rate of 3.2% would have been just 1.2% without the influx of temporary immigrants, it said.

Over 800,000 non-permanent residents were added to the population in 2023, while 471,771 permanent immigrants moved to Canada during the year.

This influx of temporary foreign workers, “can help address labour shortages and suppress wage-push inflation,” Desjardins said.

“The recent demographic explosion has also masked underlying economic weakness,” it noted.

However, Desjardins noted that the federal government’s recent pledge to cut the temporary resident population over time “will remove the principal source of recent demographic gains.”

In turn, this change “will weigh on Canadian economic growth in the years ahead,” it said — yet this shift, “is also likely to provide some relief to the ongoing affordability crisis while modestly boosting growth in real GDP per capita and real wages.”

In the short term, the latest demographic data doesn’t change expectations that the Bank of Canada will start cutting interest rates in June, Desjardins said.

“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,” it said.