Canada’s population boom will lift the economy, but only over time

Our new demographic projection suggests rapid international migration will boost Canada’s population to 42mn by 2025, which would be a record 3mn (8%) increase from 2022. The surge in population has important implications for the economy, which we will incorporate in our December economic forecast.

What you will learn:

• A larger population provides a greater supply of labour and higher potential output. But we think an increase in actual economic activity will likely occur gradually as newcomers fully settle. We still expect a moderate recession in Canada that will last through early 2024, so reduced hiring will likely further delay the full economic benefits of the migrant influx.
• The population surge is already helping loosen the labour market, and we expect this will continue. Monthly job gains since May have been outpaced by strong migration-led labour supply growth, lifting the unemployment rate from 5% to 5.7% in October, its highest level since January 2022. A widening gap between a fast-growing labour supply and weaker hiring during the deepening recession will drive the unemployment rate even higher in the coming year.
• Greater slack in the economy due to a larger labour supply lessens inflationary pressures and the likelihood of further monetary policy tightening by the Bank of Canada. Still, the migration-led population surge is adding strain to Canada’s chronic low housing supply, especially for rentals, and public infrastructure and services like education, health, and social services.