Ottawa’s proposed immigration cuts are taking business by surprise

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Businessmen and economists were surprised when Justin Trudeau’s government significantly reduced Canada’s annual immigration targets on Thursday.

A reduction was on the cards, but not many expected a drop of about 21 percent to 395,000 new arrivals in 2025 and 380,000 in 2026. The 2024 goal was about 485,000.

Targets have generally been maintained or increased for more than a decade, but the federal government decided to buck the trend due to shrinking job vacancies, rising unemployment – especially among newcomers and young people – and growing concerns about costs.

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“We didn’t expect such a drop,” said Diana Palmerin-Velasco, executive director of the Canadian Chamber of Commerce, which represents more than 200,000 businesses. “I have been hearing from employers who are also surprised and shocked. It is not yet clear what the evidence is for making these decisions.”

Immigration plays a major role in the country’s economy, as newcomers account for more than one-third of the workforce in industries such as accommodation and food services, transportation and warehousing, and the professional, scientific and technical sectors, according to Statistics Canada. The aging of the country is another reason why it relies heavily on immigrants.

The government’s annual immigration plans map out the number of permanent residents it wants to bring in over the next three years. For example, Canada in 2022 said it wants to bring in 465,000 permanent residents in 2023, 485,000 in 2024 and 500,000 in 2025. Last year, the target reached 500,000 by 2026.

This year’s cuts reflect a changing economy, Trudeau said at a press conference on Thursday. In the past, Canada closed its borders during the violence, but it had a severe shortage of workers after that, so the number of people coming to this country increased.

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But now, “our economy is in a different place,” he said. “We must allow our communities, infrastructure, to reach the people. That’s why we’re slowing population growth by reducing immigration over the next two years, so we can get back to a place where Canada can grow again.”

Canada often announces its intentions for permanent residents, but this is the first time that they have included the number of temporary residents – international students and workers – the country wants to bring.

There are currently about three million temporary residents in the country, or about seven percent of the total population. Ottawa wants to reduce that to five percent by 2026. To do that, the number of temporary residents is expected to decrease by 445,901 in 2025 and 445,662 in 2026, the government said.

Are you headed for over-repair?

Bank of Nova Scotia economist Rebekah Young, who estimated in a report that the government needs to cut 500,000 temporary residents over the next two years to meet its 5 percent target, said she was surprised the government was actually trying. to do just that.

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“The point of my report or my previous work was that if they stick to what they intended, this will be extreme,” he said. “It looks like they’re on the road to over-correction.”

Young said the government needs to provide more details on how it intends to reduce one million temporary residents over the next two years, “given how violent the program will be and the impact it will have on the economy.”

Velasco said the government’s effort to reduce the population by about half a million people a year — 105,000 residents and about 450,000 temporary residents — is an overreach.

“This means that there will be half a million people who will work,” he said. “That is really important. Many worries about businesses. It seems political, honestly. “

As a result of this decline, Canada’s population growth is expected to slow to 0.2 percent in 2025 and 2026 before returning to a growth rate of 0.8 percent in 2027. During the last two years, the population has increased by at least two million. people, or about three percent, each year.

The cuts could also affect consumer spending and slow economic growth, economists say, but could also encourage businesses to invest more and increase output.

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Since the reduction is likely to occur when the economy slows inflation and interest rates decrease, this may encourage “existing Canadians to increase their money,” said James Orlando, director of economics at Toronto-Dominion Bank, instead of leaning. the new ones.

Bank of Montreal economist Robert Kavcic in a letter on Thursday said that although the government’s decision will reduce demand, the issue that slow population growth is bad for the economy needs to be dismissed.

He said gross domestic product per capita, which measures the total production of goods and services over a period of time divided by the total population, has fallen by seven-eighths since the second quarter of 2022.

In terms of housing, Canada will need to build 670,000 fewer units as a result of the reduction, said Immigration Minister Marc Miller at a press conference.

Orlando said this will not significantly improve housing availability, but may slow down the rate of price growth.

“The hope is that, with all the incentives that are in place now for purpose-built rentals, the number of houses and condos being built in the country, maybe it will become more affordable,” he said.

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Kavcic expects the policy change to be “quickly felt” in the housing sector.

“This move will ease price and rent pressures,” he said in a note to clients on Thursday.

Kavcic also expects the cuts to offset “labour market stagnation,” where new immigrants and young adults are struggling.

“While there are still pockets of skilled labor shortages in the Canadian economy (for example, trade and health care), the influx of temporary residents does not add much to that labor supply — in fact, it creates a greater demand,” he said.

Orlando said the reduction gives hope that there will be an improvement in the unemployment rate.

“It does not mean that the rate of unemployed people will decrease,” he said. “This is a story of gradual progress.”

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