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Tag: GDP growth Canada

  • Immigration Bolstered Canada’s Economy in 2023, But Policy Shift Raises Concerns for Future Growth

    Immigration Bolstered Canada’s Economy in 2023, But Policy Shift Raises Concerns for Future Growth

    A reduction in immigration could hinder Canada’s economic momentum and exacerbate labor shortages, according to economists and business leaders, as the federal government scales back the number of new arrivals.

    Experts credit immigration for helping Canada avoid a recession last year, but the recent decision to lower future admission targets has sparked warnings of economic challenges ahead.

    Immigration Fueled Economic Growth in 2023

    Statistics Canada reported that Canada’s population grew by 1.3 million in 2023, with 97.6% of that increase attributed to immigration. Economists say that the influx of people has been a key driver of GDP growth, helping to offset the economic headwinds from inflation and rising interest rates.

    “If it was not for the population growth we had last year, Canada would have entered a recession by the end of 2023,” said Charles St-Arnaud, chief economist at Alberta Central. “Even though individuals are spending less due to economic pressures, the sheer increase in population kept the economy afloat.”

    New Immigration Targets Reduced to Stabilize Housing and Services

    In November 2023, the federal government announced a plan to admit 500,000 immigrants annually in 2025 and 2026. However, Immigration Minister Marc Miller announced on Thursday a significant reduction in those targets: 395,000 in 2025, 380,000 in 2026, and 365,000 in 2027.

    The policy shift aims to ease pressure on Canada’s strained housing market and stabilize public services. “Population growth needs to be managed to avoid exacerbating housing shortages and service bottlenecks,” Miller said.

    Economists Warn of GDP Decline and Labor Shortages

    Economists caution that curbing immigration could negatively affect GDP growth. Rebekah Young, an economist at Scotiabank, warned that slower population growth, or even a decline, could shrink GDP by as much as 0.75%.

    “Even a small contraction in GDP will be felt, particularly as businesses across sectors rely on workforce growth to maintain operations,” Young said.

    Dan Kelly, president of the Canadian Federation of Independent Business (CFIB), echoed these concerns, emphasizing that immigration—both permanent and temporary—has been essential for keeping many industries afloat.

    “Our members are struggling to fill vacancies, particularly for roles like night shifts at quick-service restaurants,” Kelly said. “Immigrants have been a lifeline for the Canadian economy, and scaling back these numbers will hurt.”

    Kelly added that raising wages is not always feasible for businesses, especially in the food and retail sectors.

    Businesses Fear Operational Challenges Amid New Immigration Limits

    Business organizations, including the Canadian Chamber of Commerce, have expressed concerns over the economic impact of the new immigration plan. Diana Palmerin-Velasco, senior director for the Future of Work at the Chamber, stressed the importance of immigration to economic and workforce growth.

    “Immigration is critical, particularly as we face an aging population, low fertility rates, and a wave of retirements,” Palmerin-Velasco said.

    Shift in Policy Could Ease Public Sentiment on Immigration

    While business leaders fear the reduction in immigration will hurt the economy, some experts believe the move could help ease negative public attitudes toward immigration.

    Victoria Esses, director of the Network for Economic and Social Trends at Western University, explained that public anxieties about job competition and resource allocation tend to rise during economic slowdowns.

    “A smaller influx of immigrants could reduce some of the negative perceptions we’re seeing right now,” Esses said, noting that economic uncertainty often fuels anti-immigration sentiment.

    Balancing Growth and Public Resources

    The federal government’s decision to lower immigration targets represents an attempt to balance economic growth with the housing crisis and strained public services. However, economists and business leaders caution that scaling back immigration may come at the cost of slower GDP growth and intensified labor shortages.

    As Canada navigates these changes, policymakers will need to carefully manage the trade-offs between stabilizing the economy and addressing public concerns over immigration.

    Source : Swifteradio.com

  • Matthew Lau: Don’t Believe Freeland—Her Economic Plan Isn’t Working

    Despite Finance Minister Chrystia Freeland’s recent claim that the Bank of Canada’s interest rate cut “shows that our economic plan is working,” a closer look at the numbers reveals a different story. In fact, real GDP per capita has declined in seven of the last eight quarters, highlighting the weak economic performance under Prime Minister Justin Trudeau’s leadership. Since Trudeau took office, cumulative GDP growth has barely reached 0.6%, compared to the United States’ robust 16.4% over the same period.

    To put this into perspective, had Canada’s economy matched the U.S. growth trajectory since Trudeau became Prime Minister, Canadians would be 16% wealthier today. The interest rate cut, contrary to Freeland’s assertion, does little to suggest that the Trudeau government’s economic strategy is working. It’s more of a coincidence than an indication of success—like crediting a large breakfast for economic growth.

    Most entrepreneurs and investors would agree that the Liberal economic plan is failing. Real business investment per capita fell 5% year-over-year in the second quarter of 2024 and has plummeted more than 15% since the third quarter of 2015. And the worst might still be ahead—this sharp decline came before the impact of the Trudeau government’s capital gains tax hike, which went into effect at the end of June. The Liberals argue that this tax hike won’t hurt the economy except for the wealthiest, but this claim, like many others about the economy, is flawed.

    Public confidence in the government’s economic plan is also dwindling. While inflation has now moderated to under 3%, this does not undo the spike in consumer prices over the last few years. Today, the Consumer Price Index is 11% higher than it would have been had inflation followed its pre-2021 trend. The result is reduced affordability and growing financial insecurity for Canadians. According to a March poll by Abacus Data, 71% of Canadians said their household debt is rising, 65% expect a slow economic recovery, 52% feel financially unstable, and 74% believe housing affordability will only worsen.

    Freeland’s claim that “our economic plan is working” rings hollow for most Canadians. However, one group that seems to be benefitting from the Liberals’ economic management is the federal public service. Between 2015 and 2024, employment in federal departments and agencies ballooned by 43%, compared to a meager 12% rise in private-sector and self-employment. This includes a 48% increase in staffing at the Canada Revenue Agency, and a staggering 80% rise at Employment and Social Development Canada.

    It’s no wonder Canada is facing a productivity crisis. Despite Freeland’s optimism, Treasury Board President Anita Anand recently admitted that Canada is grappling with low productivity levels. The government has formed a working group to address this issue, but ironically, the federal government itself is an example of inefficiency. Canada Post posted its sixth consecutive annual loss in 2023, and mechanical failures recently left over 200 Via Rail passengers stranded for 10 hours without basic necessities.

    While Freeland continues to insist that the government’s economic plan is on the right track, the evidence paints a different picture. In fact, a poll from earlier this year found that 70% of Canadians believe “everything is broken in the country right now”—a sentiment that seems to echo the dysfunction of a stranded federal train .

     

    Sources:

    • Lau, M. (2024). “Matthew Lau: Don’t Believe Freeland—Her Economic Plan Isn’t Working.” National Post.