Last Updated On 24 January 2025, 9:33 AM EST (Toronto Time)

Canada’s recently announced plan to lower immigration levels over the next three years is set to bring significant economic changes, including a 1.4% increase in real GDP per capita by 2027.

The production per individual of an economy is denoted by real GDP per capita.

However, this comes at the cost of an overall 1.7% reduction in the country’s gross domestic product (GDP), as reported by the Office of the Parliamentary Budget Officer (PBO).

Gross domestic product (GDP) is a metric that reflects the overall value of products and services produced in a nation during a specific time frame.

These changes stem from the federal government’s 2025-2027 Immigration Levels Plan, which aims to stabilize population growth and address various economic and societal challenges.

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Population Impact

The federal government’s decision to lower the number of new permanent residents will lead to a 3.2% reduction in Canada’s population, equivalent to 1.4 million fewer people, by 2027.

According to the PBO report, this population reduction will significantly alter the country’s demographics and labour market dynamics.

Under the new immigration plan, annual permanent resident admissions will drop from 500,000 to:

  • 395,000 in 2025
  • 380,000 in 2026
  • 365,000 in 2027

Additionally, the federal government aims to cut the number of temporary residents, including international students and temporary foreign workers, to just 5% of the total population by the end of 2024.

This reduction is expected to result in approximately 909,000 fewer temporary residents by 2027.

The PBO’s analysis shows that the reduction in immigration levels will have mixed economic consequences.

While the country’s total GDP is expected to decline, per capita GDP will rise, reflecting improved productivity and resource allocation.

Here are the projected economic impacts:

Year 2025 2026 2027
Real GDP (%) -0.6 -1.4 -1.7
Real GDP per capita (%) 0.8 1.3 1.4
GDP inflation (%) 0.0 0.1 0.2
Nominal GDP ($ billions) -17 -43 -52
Source: Office of the Parliamentary Budget Officer

The lower population will also result in 1.3 billion fewer hours worked in 2027, primarily due to the reduced labour force participation of an older population.

This demographic shift underscores the importance of immigration as a driver of labour market growth in Canada.

To evaluate the impact of the 2025-2027 Immigration Levels Plan (ILP), the PBO developed two demographic scenarios:

  1. Status Quo Scenario:
    • Assumes that immigration policies remain unchanged, maintaining an annual intake of 500,000 permanent residents.
    • Projects Canada’s population to reach 42.8 million by the end of 2027.
  2. ILP Scenario:
    • Reflects the implementation of the 2025-2027 ILP, reducing the population to 41.4 million by 2027.
    • Results in a comparably older population, as immigrants and non-permanent residents are typically younger and more likely to participate in the labour market.

Under the ILP scenario, the reduced labour supply is projected to increase wages by an average of 0.6% between 2025 and 2027.

However, the smaller population will reduce total household consumption by 2% during the same period.

The significant reduction in international migration will lead to a notable contraction in Canada’s labour force.

According to the PBO report, the decrease in hours worked will predominantly be driven by the demographic shock of a smaller and older population.

This shift will have the following effects:

  • Labour Supply: A reduction of 1.3 billion hours worked by 2027, with 93% of this decline attributed to the demographic impact.
  • Wages: A modest increase in wages, averaging 0.6%, as employers compete for a smaller pool of workers.
  • Employment Opportunities: While wages may rise, industries reliant on immigrant labour, such as construction, healthcare, and agriculture, may face significant challenges in meeting labour demand.

The PBO’s findings highlight the broader economic trade-offs associated with the government’s immigration plan.

On one hand, the reduction in immigration will help control population growth and potentially ease pressures on housing, infrastructure, and public services.

On the other hand, it will slow overall economic growth and reduce Canada’s tax base, which could have long-term implications for fiscal sustainability.

The government’s new immigration targets have sparked debate among policymakers, economists, and industry leaders.

While the reduction in immigration levels may help address certain societal pressures, it also poses significant risks to Canada’s economic competitiveness and labour market sustainability.

Key recommendations include:

  1. Targeted Immigration Programs:
    • Focus on attracting younger, skilled immigrants who can address labour shortages in critical sectors.
    • Develop policies to retain international students and temporary workers who contribute to the economy.
  2. Investment in Automation and Technology:
    • Encourage businesses to adopt automation and technology to offset the reduced labor supply.
    • Provide incentives for innovation and productivity enhancements.
  3. Infrastructure and Housing Development:
    • Increase investments in housing and infrastructure to support sustainable population growth.
    • Implement policies to improve affordability and accessibility for all Canadians.
  4. Long-Term Population Planning:
    • Develop a comprehensive population strategy that balances economic, social, and environmental considerations.
    • Engage stakeholders from various sectors to build consensus on Canada’s long-term immigration and population goals.

Canada’s decision to reduce immigration levels over the next three years marks a significant shift in the country’s population and economic policy.

While the move is expected to result in a 1.4% increase in real GDP per capita by 2027, it will also lead to a 1.7% reduction in total GDP and significant changes to the labour market.

Balancing these trade-offs will require careful planning and targeted investments in critical areas such as housing, infrastructure, and technology.

As Canada navigates these challenges, the government’s ability to adapt and respond to changing economic and demographic conditions will be crucial.

By prioritizing sustainable growth and leveraging the strengths of its diverse population, Canada can build a prosperous and inclusive future for all its residents.

What is the real GDP per capita?

GDP per capita is defined as the production per individual of any given economy.

It is frequently regarded as a reliable indicator of a country’s economic development and the general welfare and standard of living of the population, particularly when compared to other economies.

What is GDP?

A metric that reflects the aggregate value of products and services produced by a country during a specific time period is Gross Domestic Product (GDP).



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