Stopping Temporary Resident Admissions Would See Canada Hit Recession

A new Desjardins Securities Inc. analysis says that reducing the number of temporary residents, international students and temporary foreign workers included could see the country hit recession.

Canada’s growth rate has climbed to 3.2 percent due to unprecedented numbers of immigrants coming to it. Just in the third quarter of 2023, there was a gain of 430,000 people, which is the fastest population growth pace in a single quarter since 1957.

Some 96% of this increase can be attributed to immigration.

“The rest of this gain, four per cent, was the result of natural increase, or the difference between the number of births and deaths,” noted Statistics Canada.

“The contribution of natural increase to population growth is expected to remain low in the coming years because of population aging, lower fertility levels, and the high number of immigrants and non-permanent residents (NPRs) coming to Canada.”

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While this surge in population helped with the labor market, it also drove up housing costs and caused many Canadians to react negatively to the proposition of welcoming more temporary newcomers.

Prime Minister Justin Trudeau has even addressed the need to adjust Canadian policy to control the “massive expansion” in temporary residents.

However, Randall Bartlett Desjardins’ senior director of Canadian economics, analyzed the impact of dramatically hiking and contracting the number of temporary foreign admissions and found that “a sharp drop-off could deepen the recession expected in early 2024.”

“Closing the door to temporary newcomers would deepen the recession expected in 2024 and blunt the subsequent recovery. It would similarly lower potential GDP,” Bartlett wrote in the report released on Wednesday.

“Caution is warranted on the part of policymakers to minimize the economic downside of slowing newcomer arrivals too quickly. But it’s not an easy balance to strike as sustained high NPR admissions could further strain provincial finances and housing affordability.”

According to Bartlett, halving the number of temporary residents could plummet real GDP considerably below current forecasts, and double the recession that is expected in the first half of 2024.

Canada let in 454,590 new PRs over a 12-month period to October 1, all while bringing in 804,690 non-permanent residents. While temporary admissions are likely to drop with the economy anyway, Bartlett said that the changes in Canadian policy could initiate that decline faster.

Alternatively, if NPR admissions were to remain higher than the baseline projections, GDP growth would be fueled to a point that the economic slowdown that is currently in projection will be milder, possibly allowing Canada to avoid a recession altogether.

However, that would be a challenge for the Bank of Canada to bring inflation to its two percent target.

“Inflation would likely also be more elevated, complicating the Bank of Canada’s job and probably keeping rates higher for longer than they would be otherwise,” wrote Bartlett.

Furthermore, it would have repercussions on the Canada housing crisis, even if the current number of newcomer arrivals are maintained – let alone increased.

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Bartlett used Desjardins’ recent economic and financial outlook as a baseline (which contains population-growth estimates that are roughly in line with the Bank of Canada’s most recent monetary policy recent), according to BNN Bloomberg. The Desjardins forecast assumes half as many non-permanent residents in 2024 in comparison to last year, then half as many again in 2025, before reaching bottom in 2026.

Numbers will start rising again after that.

Based on those estimates, Desjardins predicted that real GDP will grow only by 0.1 percent in 2024, and 1.95 percent on average annually from 2025 through 2028.

However, if Canada were to shut the door to temporary residents, with a halt in NPR admissions, real GDP growth would contract by 0.7 this year, while an increase in admissions would cause it to rise by 1 per cent.

While the Bank of Canada’s official forecast does not predict recession, its Governor, Tiff Macklem, said in a BNN Bloomberg interview that the first part of 2024 is “not going to feel good.”

The Canada federal government released its immigration levels targets in November, detailing its plans on maintaining its targets of 485,000 PRs for 2024, 500,000 for 2025, and thereon stabilizing them at 500,000.