Canada's population is declining for the first time since the 1950s, raising concerns about a so-called 'demographic recession.' However, economists argue that the situation is not as dire as it appears, with several positive indicators emerging from the data.
Population Decline Confirmed
Statistics Canada has confirmed that the national headcount has fallen for three consecutive quarters, the first such declines since the 1950s. The population is now down by 0.5 percent from a year ago. This marks a significant shift from the post-pandemic population boom and reflects federal efforts to curb runaway growth that was straining resources.
Economic Implications
According to National Bank of Canada strategist Taylor Schleich and economist Daren King, a declining population changes Canada's 'macro math' and could influence the Bank of Canada's outlook. The most notable change is that economic growth is stronger than headline figures suggest. While real GDP has contracted for two straight quarters, GDP per capita has turned positive, expanding by almost 1 percent in the first quarter. With growth expected to pick up in the second quarter, GDP per capita could rise by nearly 3 percent, the fastest rate since 2022.
Economists at the Royal Bank of Canada explain that population growth swings have disrupted traditional data interpretations. Between 2023 and 2024, GDP per capita declined while headline GDP appeared stronger. Now, the opposite is true: headline GDP looks weaker than reality, while Canada is in an early-stage recovery from a soft patch that began in early 2023, says senior economist Claire Fan.
Job Market Distortions
Job numbers are also heavily distorted by population growth. When accounting for the unprecedented slowing in population growth, the labor market appears more positive. Fewer residents mean fewer potential workers, so flat monthly job readings no longer warrant an immediate negative assessment. Breakeven job growth—the pace needed to keep unemployment steady—is now below 10,000 new positions, explaining why sluggish hiring has not pushed the jobless rate higher over the past year. 'To be sure, flatlining employment is nothing to get excited about, but it does mean that job market slack has stopped accumulating,' said Schleich and King.
Disinflationary Effects
Declining population is also disinflationary because it lowers demand. Fewer people buying homes or renting apartments has contributed to a slump in home prices and rents, which will eventually show up in the consumer price index. This means more core inflation relief is coming, and the odds of a quick pivot by the Bank of Canada to tighter monetary policy are low as trade uncertainty continues to weigh, according to Schleich and King.
