Canada's Economy Withstands Major Immigration Reduction – Implications for Australia

Canada's Immigration Reduction Policy and Economic Indicators

The Canadian government did not set specific net overseas migration targets, instead choosing to reduce the proportion of temporary immigrants relative to total population. The goal is to lower the temporary immigrant ratio from 7.6% in 2024 to 5%. The government reduced the number of temporary entrants including international students, made visa extensions more difficult, and granted permanent residency to some temporary immigrants, achieving roughly half of its current target.

As a result, Canada's annual population growth rate plummeted from 3.1% in early 2024 to 0.5% currently. A May report from the CD Howe Institute projected Canada's real GDP growth would reach only 0.5% in 2026, with potential employment declines this year and next. Long-term growth is expected at just over 1% annually.

Economists' Assessments

CD Howe Institute report authors Don Drummond and Parisa Mahboubi characterized the employment decline as "the result of a normally functioning labor market given demographic changes," stating "this is not a sign of an economy in distress. The Canadian economy is not collapsing, it is adjusting."

Royal Bank of Canada Deputy Chief Economist Nathan Janzen said "the Canadian economy has shown relative resilience," noting "if population estimates are correct, even with negative employment growth, unemployment rates could fall, and per capita economic indicators are improving." The university sector was particularly hard hit, though exceptions were made for labor shortage sectors such as agriculture and the care economy.

Comparison with Australia

Economists cautioned against directly applying the Canadian case to Australia. Challenger Chief Economist Jonathan Kearns noted "Canada's post-pandemic surge was much larger than Australia's." Canada's current population is 5% above the pre-COVID trendline, while Australia is only 0.2% above.

Canada began its immigration crackdown during a period of high unemployment following the Bank of Canada's aggressive interest rate increases. In contrast, Australia faces a tight labor market with 4.6% unemployment and widespread labor shortages. Westpac Chief Economist Luci Ellis said "you can't look at Canada and say 'it was fine.' They also have cyclical factors of recovering from a recession."

Long-term Outlook and Structural Challenges

According to CD Howe Institute analysis, if current low population growth rates persist permanently, Canada's economy would be 11.5% smaller by 2060 than official government projections. The report stated "the implications for fiscal sustainability are significant. This leads to structurally weak revenues and higher debt ratios."

Janzen explained "without immigration, labor shortages will become a structural feature of the economy," adding "the view is that this will be a temporary adjustment, followed by a return to historical immigration levels." Ellis pointed out that Australian employers have become overly dependent on overseas labor, sacrificing local workforce training and employment, stating "by choosing high population growth with a high share of temporary workers, we made it easy for employers to look overseas whenever needed. There are clearly industries that have become dependent on this."

Source: The Guardian