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Canada is caught in a “population trap” and needs to significantly rein in immigration to escape it, National Bank of Canada economists said on Monday, one of several such critiques to emerge from Bay Street in recent days.
In a report, National Bank economists Stéfane Marion and Alexandra Ducharme said that “staggering” population growth is stretching the country’s absorptive capacity, notably seen in residential construction that is nowhere near sufficient to house all those newcomers.
The National Bank economists argued that annual population growth should not exceed 300,000 to 500,000.
Their suggestion is wildly different from current trends. Over the 12 months to Oct. 1, Canada’s population grew by 1.25 million or 3.2 per cent, the quickest pace of growth since the late 1950s. Almost the entirety of population growth is driven by international migration, and most of that comes from temporary residents, such as students and workers.
“Canada is caught in a population trap that has historically been the preserve of emerging economies,” the report said. “We currently lack the infrastructure and capital stock in this country to adequately absorb current population growth and improve our standard of living.”
The federal government’s expansionary immigration policies have increasingly come under fire. While Ottawa sets targets for the intake of permanent residents – the figure for this year is 485,000 – there are effectively no limits on the arrival of temporary residents.
At an event in Toronto last week, chief economists at Canada’s major banks were roundly critical of how Ottawa is managing the immigration file.
“I’m a bit surprised that the government is moving fairly slowly on this,” Avery Shenfeld, the chief economist at CIBC Capital Markets, told the audience at the Economic Club of Canada event. “I think there’s some urgency to bring these numbers of students and temporary workers into better balance with the arithmetic of our home-building strategy. … The numbers just don’t add up.”
The federal government has signalled that it could start to rein in the number of temporary residents sometime this year, perhaps by limiting the number of visas approved.
Still, it appears that Ottawa did not heed warnings about the potential impact of its immigration policies. The Canadian Press reported last week that federal public servants told the government in 2022 that rapid increases in population could put pressure on access to health care and affordable housing.
In their report, the National Bank economists said a population trap is a situation in which living standards are unable to improve, because the population is growing so quickly that all savings are needed to maintain the capital-to-labour ratio. Capital includes a variety of things – such as property, equipment and software – that are used for the production of goods and services.
In Canada, the capital stock per worker lags well behind that of the United States. Moribund levels of business investment and weak productivity growth are perennial themes of debate in the Canadian economy, predating the recent surge of newcomers to the country.
Even so, many commentators say the issue has reached a crisis point. Real gross domestic product per capita – a popular measure of living standards – is no higher today than in 2017.
As it relates to immigration, Bank of Nova Scotia chief economist Jean-François Perrault said last week that policy makers had perhaps made it “too easy” to hire foreign workers. “We’re making it cheaper to bring people in, rather than investing,” he told the Economic Club of Canada event.
Citing a labour shortage, the federal government has taken several steps over the past two years to increase employers’ access to foreign workers. It temporarily scrapped a limit on work hours for international students who are employed off-campus. Ottawa has also expanded the Temporary Foreign Worker Program, such that companies can hire more workers from abroad at low wages.
At the event last week, Mr. Marion of National Bank said the Toronto area was expanding by around 20,000 people a month, akin to the population of Brockville, Ont.
“What does that do to rent inflation? You can’t control it,” he said.
The federal government has “lost control on immigration policy,” he added.
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