Immigration prevented a recession last year, but looming changes could stall growth: economists

Reducing the number of new admissions to the country could have negative consequences for the economy and pose challenges for commerce, according to business advocates and economists alike.

Economic measures such as the gross domestic product (GDP) have been moving in a positive direction, economists say, in part because Canada's population has continued to increase due to rising immigration levels.

Statistics Canada reported in March that the country's population grew in 2023 by about 1.3 million, and 97.6 per cent of that growth was the result of immigration.

Under a government plan released last November, Canada was expected to admit about 500,000 people in both 2025 and 2026. But on Thursday, the federal Liberals changed course, announcing the projected number of new permanent residents to Canada will be cut from 485,000 this year to 395,000 in 2025, 380,000 in 2026 and 365,000 in 2027.

The move is designed to lessen pressure on the country's housing market and stabilize population growth, Immigration Minister Marc Miller said.

But some economists note that higher immigration had economic benefits for Canada, and there could be negative consequences from cutting back.

"If it was not for the population growth that we had last year, the Canadian economy would have been in a recession at the end of 2023," said Charles St-Arnaud, chief economist with credit union group Alberta Central.

With more people coming to Canada, more money is being spent overall, he said — even if each individual has been spending less as they feel the pressures of a more sluggish economy.

"That kept the economy afloat," St-Arnaud said, although he acknowledged it was clear that immigration numbers in Canada need to be adjusted due to strains on the housing market and other public services.

Rebekah Young, an economist at Scotiabank, said even a small decrease in GDP due to slowing population growth — or a shrinking population — could have a big impact on the economy.

"Maybe we're talking about shrinking GDP by, you know, a half per cent or three-quarters of a per cent, but you're still talking about shrinking GDP as opposed to growing GDP," she said.

Young, who recently co-wrote a report on Canadian immigration days before the federal government's announcement, compared policies to the fairy tale Goldilocks and the Three Bears.

"It was too hot last year ... but what they announced today, if they actually execute it, is going right into the 'too cold,' basically flat-lining growth," she said.

Businesses are warning they will feel negative consequences as immigration is pulled back in Canada.