Immigration slowdown to weigh on Canada’s economic recovery

Immigration to Canada has plummeted during the coronavirus pandemic, weakening a dependable lever of economic growth as the country mounts its recovery.

Canada’s population increased by about 76,000 people (0.2 per cent) over the first three months of 2020, the slowest growth in a first quarter since 2015, Statistics Canada said Thursday, warning a bigger impact will likely be felt in the second quarter.

The shift was severe for temporary immigration. The net increase of non-permanent residents in the first quarter was nearly 80 per cent lower than a year ago, largely because of fewer foreign students.

The dramatic slowdown is by design. In response to the pandemic, travel to Canada is heavily restricted. Those allowed entry include temporary foreign workers, along with foreign students and permanent residents who were approved before March 18. But for most people, the border is closed.

That is a complication for the recovery because the Canadian economy relies heavily on immigration to bolster output and consumption. Fewer immigrants will affect the labour supply, housing demand and university budgets, to name some prominent examples.

“If immigration falls by so much, then there’s a number of aspects of the Canadian economy that may be impacted pretty significantly,” said Andrew Agopsowicz, a senior economist at Royal Bank of Canada.

Before the pandemic, another record-setting year of immigration looked possible. The federal Liberals planned to welcome 341,000 new permanent residents in 2020, rising to 361,000 in 2022. The high-end estimate for 2020 was an intake of 370,000 permanent residents, which would have broken the 2019 record of about 341,000. Now, those targets look unfeasible.

For one, the Canada-U.S. border is closed to all non-essential travel through at least July 21, and with COVID-19 cases accelerating in some parts of the world, border restrictions may not ease substantially in the short term.

“We’re definitely not going to be growing very rapidly as a country this year,” said Robert Falconer, a research associate at the University of Calgary who studies immigration.

The early data suggest a massive slowdown in the second quarter. In April, about 4,100 people were approved for permanent residency, down 85 per cent from the previous April, according to the most recent data published by the federal immigration department. Most approvals were for people already living in the country.

If travel restrictions and border closings last all summer, Canada’s intake of permanent residents will decline by up to 170,000 people in 2020, RBC said in a recent report.

“The disruption will reverberate across the economy, given our reliance on immigration for labour-force growth and to offset Canada’s aging demographic,” Mr. Agopsowicz wrote at the time.

Higher immigration has been a key part of the Liberals’ economic strategy. Newcomers tend to be younger than current residents, helping to slow the country’s aging toward a fiscal cliff caused by non-working seniors with few working taxpayers to support them. They also provide talent to companies, buy goods and services, and often pay higher tuition to attend Canadian universities.

Moreover, the country is stuck in a productivity rut. For years, labour productivity – output produced for every hour worked – has essentially stagnated, Statscan data show. Instead, Canada relies on population growth – that is, more workers – to juice overall growth.

For instance, Canada’s population grew by some 580,000 people last year, the largest annual gain since 1971, and driven mostly by immigration. In percentage terms, the population grew 1.6 per cent in 2019, or the same as gross domestic product when adjusted for inflation.

Still, productivity gains are needed. As it increases, so too does the value of labour, resulting in higher wages and better living standards.

Ottawa remains committed to high immigration levels and is still accepting most applications, although processing times have been significantly affected by the virus. The federal government recently posted a tender to its procurement website, marked “urgent,” that seeks to modernize an application system that still relies on paper documents and in-person interviews.

“It’s going to be key for the government to figure out an effective strategy to ramp back up to high levels of immigration,” Mr. Agopsowicz said.

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