Government’s Challenge to Reduce Temporary Immigration
There is growing skepticism about when and by how much Prime Minister Justin Trudeau’s administration can reduce the number of temporary residents in Canada. This uncertainty complicates the work of fiscal and monetary policymakers. The Bank of Canada increased its population growth projections on Wednesday, indicating that the government will likely need more time to curb non-permanent resident inflows. With a forecasted rise of 3.3% in the Canadian population over 15 years old this year, up from roughly 3% earlier, this rapid growth—among the highest globally—is bolstering economic output and may have prevented an outright recession.
Revised Population Growth Forecasts
In its latest July monetary policy report, the Bank of Canada shows that population growth is slowing down more gradually than previously expected, predicting a 1.7% growth rate for both 2025 and 2026. This revised rate is over half a percentage point higher than what was forecasted in April. Bank officials attribute this to delays in implementing policies aimed at reducing the share of non-permanent residents—including international students, foreign workers, and asylum seekers—to the federal government’s 5% target. Currently, these groups comprise 6.8% of Canada’s population, with an upward trend expected in the short term.
Implications for Monetary Policy
The timing for achieving immigration reduction has significant consequences for monetary policymakers, who must set interest rates without clear guidance on federal plans. The Bank of Canada expects more details on changes to permit programs later this year and anticipates revising its forecasts as new measures are introduced. “We devote considerable attention in our monetary policy report to explain our expectations for population growth because it crucially underpins our forecasts,” said Tiff Macklem, Governor of the Bank of Canada.
Future Projections and Economic Impact
Compared to earlier forecasts, the bank now anticipates that there will be over 435,000 additional temporary residents in Canada by 2027—an upward revision of nearly 850,000 people from the previous estimate just three months ago.
Should the government achieve its immigration reduction goals, it may lead to decreased real GDP growth and reduced price pressures, according to Randall Bartlett, Senior Director of Canadian Economics at Desjardins. This slowdown would also likely weigh on nominal GDP—the broadest measure of taxable income—potentially resulting in lower revenues and larger deficits. Consequently, Bartlett predicts that Canada’s federal debt-to-GDP ratio could end up higher in five years than what Finance Minister Chrystia Freeland projected in her downside scenario for the 2024 budget.
