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Halting temporary resident admissions would deepen Canada's recession: Report

Ottawa is offering a lifeline to people fleeing a civil war in Sudan if they have relatives in Canada who agree to financially support them. Immigration Minister Marc Miller says this new humanitarian pathway is for both Sudanese and foreign citizens who lived in Sudan when conflict broke out in mid-April. Miller delivers remarks at a press conference in Ottawa, Thursday, Dec. 21, 2023. THE CANADIAN PRESS/Spencer Colby

With Canada's economic prospects increasingly dependent on population growth, a new analysis by Desjardins says cutting the number of non-permanent residents (NPRs) allowed into the country could deepen the expected recession and subsequent recovery.

Canada's population has surged, with the most recent gain of 430,000 people in the third quarter of the year, marking the fastest pace of population growth in any quarter since 1957. As of Oct. 1, Canada's population was estimated to be 40.5 million. Population growth in the first nine months of the year has already surpassed the record set in the full year 2022. The growth has been fuelled by international migration, including a sharp increase in the number of NPRs admitted into the country.

Randall Bartlett, Desjardins' senior director of Canadian economics, analyzed the impact of dramatically increasing and decreasing the number of NPR admissions and found that "a sharp drop-off could deepen the recession expected in early 2024."

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"Closing the door to temporary newcomers would deepen the recession expected in 2024 and blunt the subsequent recovery. It would similarly lower potential GDP," Bartlett wrote in the report released on Wednesday.

"Caution is warranted on the part of policymakers to minimize the economic downside of slowing newcomer arrivals too quickly. But it's not an easy balance to strike as sustained high NPR admissions could further strain provincial finances and housing affordability."

At the same time, if NPR admissions were to remain elevated and above the baseline projections, GDP growth would accelerate and would lead to a milder economic slowdown than currently anticipated, "possibly avoiding a recession altogether", Bartlett wrote. However, it would also present a challenge for the Bank of Canada in its goal of bringing inflation back to its two per cent target.

"Inflation would likely also be more elevated, complicating the Bank of Canada’s job and probably keeping rates higher for longer than they would be otherwise," Bartlett wrote.

It would also exacerbate the housing affordability crisis in Canada. Bartlett notes that "maintaining the current pace of newcomer arrivals will erode housing affordability further in the absence of a monumental increase in the supply of homes."

Desjardins projects that, under its baseline scenario, real GDP growth will be 0.1 per cent in 2024. If the number of NPR admissions grinds to a halt, real GDP growth would contract 0.7 per cent this year. An increase in NPR admissions would result in 1 per cent rise in real GDP growth.

"In our opinion, the big wildcard (for population growth) is net non‑permanent residents, who have been the primary driver of the recent surge in Canada’s population," Bartlett wrote.

"While we anticipate the flow of these newcomers to slow, how much it slows will have material impacts for Canada’s economic growth, both in the near and long term."

The federal government unveiled its immigration targets in November, and said it plans on maintaining its target of 485,000 permanent residents for 2024 and 500,000 in 2025. The government also says starting in 2026, it will "stabilize permanent resident levels at 500,000." It also plans to "take action over the next year to recalibrate the number of temporary resident admissions to ensure this aspect of our immigration system also remains sustainable."

With files from The Canadian Press

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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