A new report from the C.D. Howe Institute warns that Canadian policymakers risk misinterpreting upcoming economic data due to recent reductions in immigration and temporary foreign worker levels. The think tank emphasizes that short-term dips in population will make key indicators such as total employment and economic growth appear more sluggish than the actual economic performance.
Potential for Counterproductive Stimulus
The report, set to be published Wednesday, cautions that misreading the data could lead to unnecessary stimulus measures, including interest rate cuts or increased government spending. Don Drummond, a former senior executive at the Department of Finance and now a fellow-in-residence with C.D. Howe, stated, “There’s concern that they won’t recognize that that’s the new reality.”
Right Calls but New Challenges
Drummond noted that the cuts to immigration and temporary foreign workers were appropriate given Canada’s limited housing and health-care capacity. However, he stressed the importance of understanding that lower population levels will automatically affect statistics tied to demographic changes. The report forecasts a decline in total Canadian employment this year and next, with inflation-adjusted economic growth hovering between 0.4 and 0.5 percent in the near term. Specifically, employment is expected to fall by 54,000 in 2026 and another 17,000 in 2027, assuming the economy is neither overheated nor lacking demand.
Demographic Shifts at Play
These middling numbers, the report argues, are partly a function of demographic changes rather than poor economic performance. “The risk is not poor performance, but misinterpretation,” the report states. Like many industrialized nations, Canada faces a modest birth rate and an aging population, making immigration essential for population growth and labor supply. Immigration levels peaked at over 472,000 in both 2023 and 2024, but federal targets for 2026 have been reduced to 380,000, with further declines to 365,000 next year. Additionally, the number of new temporary residents—including foreign students and temporary foreign workers—was cut by about 50 percent last year.
Impact on Policy Decisions
The past surges in immigration and temporary residents added pressure on housing and health-care services in many communities. It remains unclear how much these population changes have influenced policymakers. The federal government has recently favored fiscal stimulus, running large deficits, while the Bank of Canada has worked to control inflation amid rising oil prices due to Middle East conflicts.
