RBC Report Says Curbing Temporary Immigration Will Cost Canada Economic Growth

An RBC Economics report says cutting back on temporary resident immigration to Canada is going to hurt the country’s economic growth and make the impact of retiring Baby Boomers harder to handle.

“When the population rises via immigration, it essentially floats all boats,” notes RBC senior economist Nathan Janzen.

“It increases both the capacity of the economy to produce more goods and services (by increasing the supply of labour) and increases demand for those products because every added resident arriving from abroad is also a consumer.

Slower population growth will both reduce demand for workers and supply of workers at the same time, he points out.

“That will have an impact on total production and income earned in the economy. It will take time for the population of non-permanent residents to decline even after limits on new arrivals come into effect.

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“But our own early assumption is that slower population growth could make the economy grow about 0.5 per cent less than previously expected by the end of 2025.”

During the COVID-19 pandemic’s first years, temporary immigration to Canada more than tripled as far more temporary workers and international students chose to come here, reveals data from Immigration, Refugees and Citizenship Canada (IRCC).

In 2019, the last full year before the Covid-19 pandemic, Canada issued a little more than half a million new study permits and work visas, welcoming a total of 522,110 temporary residents.

Four years and later, the number of temporary residents with these permits was more than 1.6 million as of the end of 2023.

During the same period, housing became increasingly unaffordable, leading Immigration Minister Marc Miller to put a cap on study permit applications limiting these to 606,250 this year, a move which is expected to reduce the number of new study permits issued this year by 40 per cent.

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“The intent of these Instructions is to ensure the number of study permit applications accepted into processing by the Department of Citizenship and Immigration … within the scope of the instructions does not exceed 606,250 study permit applications for one year beginning on the date of signature,” the Canada Gazette reported on Feb. 3.

Then, on March 21, the immigration minister announced Ottawa will be taking further steps to limit temporary immigration with the first temporary immigration levels plan to be unveiled in September.

That move is expected to reduce the number of temporary residents by five over the coming three years.

Temporary Foreign Workers And International Students Help Ease Load Of Retiring Baby Boomers

With that drop in immigration to Canada, the country’s age will get older and the impact of retiring workers will be felt that much more on Ottawa’s coffers.

“Immigration has long been seen as one way to help blunt the economic impact from the wave of people leaving the labour force as the relatively large baby boom generation continues to hit retirement age,” notes Janzen in his report.

“Those retirements lower tax revenues for governments while demand for services like healthcare and social security accelerates, creating a large funding gap.”

In his report, How Lowering The Number Of Non-Permanent Residents Will Impact Canada’s Economy, the economist points out that Canada’s long-term demographic challenges aren’t going to go away.

“Labour shortages have been easing as high interest rates slow hiring demand, but they’ll be back again after the short-run economic cycle as the share of the population hitting retirement age continues to rise,” he cautions.

The irony is the planned reduction in temporary immigration is being touted as a way to improve housing affordability and it’s unlikely to be able to do that.

“Slower population growth might slow house price and rent growth in future years but isn’t likely to solve Canada’s affordability problem,” he notes.

“The shortage of housing in Canada … is decades in the making and predates the recent surge in population growth. As we take away some of the housing or rental demand in the near-term, we’re also taking away potential labour supply in construction and building activities that will help build more houses.”

Housing affordability can only be addressed by creating more apartments and houses for the people who need it, he points out.

“In the end, it still comes down to addressing the capacity limits on the supply side over the long run to be able to sustainably improve housing affordability,” notes Janzen.

Housing Affordability Will Remain An Issue Even With Lower Immigration

“There is still a growing amount of excess demand for housing in the market currently. Just last year, the 242,000 new home starts lagged far behind the 1.2 million increase in population (approximately 360,000 new households).

The RBC economist is not the only one to sound the alarm about the likely economic impact of limiting temporary immigration.

In Temporary Workers, Temporary Growth? How a Slowdown in the Recent Migration Surge Could Exacerbate Canada’s Downturn, Desjardins principal economist Marc Desormeaux has also warned that lower numbers of temporary residents could harm the economy.

“History suggests the recent surge (in the number of temporary residents in Canada) could ease significantly, exacerbating a nascent economic slowdown,” cautions Desormeaux.

“That could have significant consequences nationwide, most notably in the largest provinces.”