(Bloomberg) -- There’s mounting uncertainty about when and by how much Justin Trudeau’s government will be able to reduce the number of temporary residents in Canada, muddying a key input for fiscal and monetary policymakers.
The Bank of Canada raised its population growth forecasts Wednesday, saying the government will probably need more time to limit non-permanent resident inflows. It predicts the number of people over 15 in Canada will rise by 3.3% this year, up from about 3% previously. The pace — among the fastest in the world — is boosting output and likely kept the country from falling into an outright recession.
The bank’s latest estimates in its July monetary policy report show population growth decelerating at a slower pace than it had previously expected, reaching 1.7% in both 2025 and 2026, more than half a percentage point higher than in its April report.
That’s because bank officials say it will take longer for planned policies to bring the proportion of non-permanent residents — including international students, foreign workers and asylum-seekers — to the federal government’s 5% target. The bank puts the share at 6.8% of the Canada’s population and rising in the near term.
The timing of the reduction has major implications for the country’s monetary policymakers, who are tasked with setting interest rates without any firm details on the federal government’s plans. Clarity on changes to permit programs isn’t expected until later this year, the bank said, and it’s already expecting to revise forecasts as further measures are announced.
“We do devote quite a bit of attention in the monetary policy report to try to explain what we think will happen with population growth because that really underpins our forecast,” Bank of Canada Governor Tiff Macklem told the Financial Post in an interview.
Compared to 2023, more than 435,000 additional temporary residents will live in Canada by 2027, according to the central bank’s most recent forecast. Just three months ago, the bank thought the number would fall by 413,000 by that time — not rise. It’s an upward revision of nearly 850,000 people, roughly the total population of Quebec City’s metropolitan area.
If the government is able to reach its goal, the immediate result would be downward pressure on real gross domestic product growth and price pressures, said Randall Bartlett, senior director of Canadian economics at Desjardins. That would also weigh on nominal GDP, the broadest measure of the tax base.
“The resulting lower revenues should lead to larger deficits and higher debt,” Bartlett said in a report on Thursday. The federal debt-to-GDP ratio could end the next five years at a higher level than in Finance Minister Chrystia Freeland’s downside scenario in her 2024 budget, he added.
That also has the potential to threaten Freeland’s commitment to her fiscal guardrails, which include pledges to hold the budgetary deficit around $40 billion (US$29 billion) before reducing the shortfall to about 1% of the country’s economy in 2026.
“Add to this additional spending not included in Budget 2024, such as the greater expenditures on defense announced recently, and the federal government’s fiscal anchors are very much at risk,” Bartlett said.
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