RBC - Royal Bank of Canada
RBC - Royal Bank of Canada
10/25/2024 | News release | Distributed by Public on 10/25/2024 15:27
How Canada’s new immigration targets will impact the economy
Slide 1 of 9
The Canadian government has been under growing pressure to align the inflow of newcomers to the country with current labour market needs and infrastructure capacity-which prompted a massive reversal of the post-pandemic immigration plan set by the federal government.
Ambitious immigration targets were originally put forward to tackle labour market imbalances and financial stress on government balance sheets from an aging population.
In the years after the pandemic, policies around work permit eligibility were relaxed to address short-term labour supply shortages. International study permit allocations also expanded as post-secondary institutions turned to international students as a funding source to make up for cuts in government transfers and domestic tuition caps or freezes. This lead to a surge in new non-permanent residents to Canada, which surpassed the one million mark in 2023.
Slide 2 of 9
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Immigration, Refugees and Citizenship Canada (IRCC) cut permanent resident targets 20% from 500,000 to 395,000 in 2025 and plans to keep it on a downtrend after that with 380,000 in 2026 and 365,000 in 2027.
Despite the cuts, new targets for permanent residents will still be well above levels seen before the pandemic.
Slide 3 of 9
- For the first time ever, Immigration, Refugees and Citizenship Canada (IRCC) has released targets for non-permanent residents in an effort to control rapid population growth following a surge of arrivals.
Slide 4 of 9
- The IRCC intends to reduce the number of non-permanent residents in the country to 5% of the total population. They represented 7.3% of the population as of July. This implies a net reduction of nearly 900,000 non-permanent residents over the next two years.
Slide 5 of 9
- More than 40% of overall permanent resident admissions next year are expected to be from non-permanent residents, who are transitioning to permanent residency. Still, the stock of net new permanent and non-permanent residents is expected to drop in 2025 and 2026 under the latest plan.
Slide 6 of 9
- Roughly 1.3 million non-permanent residents would be required to either leave Canada or transition into permanent residency in 2025 under the current targets. That's more than double the gross outflow we've seen in the last two years.
Slide 7 of 9
- Permanent residents and non-permanent residents accounted for 98% of population growth in 2023 and 2024. The targeted reduction in the number of newcomers would slightly shrink Canada's population by 0.2% in each of the next two years, according to IRCC.
Slide 8 of 9
- Limiting immigration to the extent proposed would sharply slow down the increase in new households. This will help realign housing demand with supply-so long as homebuilding can be sustained near current levels. Reducing the supply gap would go a long way toward alleviating the intense pressure many Canadians are under when looking for a home they can afford.
Slide 9 of 9
These new immigration targets will help rebalance Canada's housing market, but a shift to strict population controls will come with consequences as well.
The policy shift is putting Canadian demographics back on an aging trend, and thereby, limiting the number of hours worked available in the economy without necessarily lowering the unemployment rate. That's because the cooling in demand arising from having fewer consumers in the country will offset any shrinkage in the labour force, leaving the unemployment rate unchanged.
Significantly reduced population growth will also weigh on government balance sheets as an accelerated aging population puts upward pressure on healthcare costs and pension obligations.
Plans to lower population growth, if fully and successfully implemented, could subtract nearly a percentage-point from our growth forecast for Canada over the next three years.
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