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Limiting the number of temporary workers and international students entering Canada could exacerbate an expected economic downturn and impede the country’s subsequent recovery, according to a report by Desjardins Securities Inc. The significant increase in newcomers has propelled Canada’s population growth rate to 3.2%, among the highest globally. While this has positively impacted the labor market, it has also contributed to rising housing costs, triggering concerns in the traditionally Immigration -friendly nation.
Prime Minister Justin Trudeau has recognized the necessity of adjusting policies to address the “massive expansion” in temporary residents. While a complete ban on non-permanent residents is not under consideration, Desjardins’ Senior Director of Canadian Economics, Randall Bartlett, analyzed the potential impact of immigration policy changes. He cautioned that if the influx of temporary residents were to halt abruptly, real gross domestic product (GDP) would fall well below current forecasts. The recession expected in the first half of 2024 could also double in length.
Bartlett emphasized the need for policymakers to exercise caution in slowing newcomer arrivals too quickly, as it poses economic risks. However, maintaining high levels of non-permanent resident admissions could strain provincial finances and exacerbate housing affordability challenges.
In the 12 months leading up to October 1, Canada welcomed 454,590 new permanent residents and a record 804,690 non-permanent residents. While temporary admissions are expected to naturally slow with economic conditions, policy changes may accelerate this decline.
Desjardins’ economic outlook, aligned with the Bank of Canada’s estimates, projects a reduction in non-permanent residents in 2024 and beyond. If Canada were to shut its doors to temporary residents, the report predicts a 0.7% drop in real GDP in 2024, with an average annual growth of 1.78% in the subsequent four years.
Conversely, doubling the pace of non-permanent resident admissions could lead to a milder economic slowdown than anticipated, potentially avoiding a recession. This scenario would result in a 1% growth in real GDP in 2024 and an average annual growth exceeding 2.1% thereafter.
While the Bank of Canada does not foresee a recession in its official forecast, Governor Tiff Macklem acknowledges challenges in the early part of 2024. Increasing temporary resident admissions may contribute to heightened inflation, complicating the central bank’s role and potentially prolonging higher interest rates, according to Bartlett. On the other hand, restricting these arrivals could help contain inflation.
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