Immigration in Canada – Policymakers must strike the right balance says TD

For years, economists had been warning that aging demographics would throw the economy off-kilter by straining economic growth, tax revenues, and the social system. A ramp up in skilled-based immigration offered a solution. Government policies have delivered, but now the question is whether the sudden swing in population has gone too far, too fast.

Highlights

• Canada’s population boomed by 1.2 million people over the last 12 months. The positive support to the labour market and economic growth risks coming at a cost of worsening dislocations in other segments of the economy.
• Continuing with a high-growth immigration strategy could widen the housing shortfall by about a half-million units within just two years. Recent government policies to accelerate construction are unlikely to offer a stop-gap due to the short time period and the natural lags in adjusting supply.
• In addition, we estimate that the neutral interest rate level would likely need to be lifted by an extra 50 basis points relative to prior assumptions on population growth.
• The population surge is a textbook demand shock. If sustained over time, the boost to industry profits, labour income and government tax revenues help re-align priorities to what’s in high demand versus what’s in short supply.
• However, the operative words are ‘over time’. The speed of change defines whether economic and social factors can ‘catch up’.
• Policymakers must strike the right balance between the ability to absorb population growth within the economic and social infrastructures, while leveraging policies to better utilize the current workforce and integrate new Canadians.

Source: Balancing Canada’s Pop in Population