The Canadian federal government's restrictions on temporary residents' entry into Canada may have a greater impact than we imagined.
Immigration policy is a double-edged sword.
The Canadian government plans to reduce the number of non-permanent residents to 5% of the total population within the next three years. Since the outbreak, immigration has driven explosive population growth in Canada, raising concerns about whether infrastructure, especially housing, can handle such growth.
However, reducing immigration numbers also has negative implications. Randall Bartlett, senior economist at Desjardins (Fédération des caisses du Québec) in Quebec, Canada, said that if Canada successfully restricts non-permanent residents, it will not only affect economic growth, but also impact the country's deficit and debt.
Reducing non-permanent residents will slow the growth of the working-age population and thus slow the growth of real Gross Domestic Product (GDP).
"Slower growth in real GDP and inflation means that growth in nominal GDP - the broadest measure of the tax base - will also be lower," Bartlett said.
However, the 2024 federal budget assumes that population growth will be high in the coming years and does not clearly include a reduction in non-permanent residents in the plan, indicating that there is a risk to its real GDP forecast.
Reducing non-permanent residents means a reduction in revenue, which could lead to larger deficits and higher debt.
"In fact, the federal debt-to-GDP ratio may be higher at the end of the next five years than in the downside scenario of the 2024 budget," the economist said.
When Desjardins used the lower population growth forecast recently provided by Statistics Canada, the deficit would be nearly 8 billion Canadian dollars higher than the budget baseline.
"Of course, savings can be found by reducing expenses, but that is easier said than done," Bartlett said.
The government recently pledged to increase defense spending to 2% of GDP by 2032 to meet NATO targets. Even if the increase is gradually phased in, new spending will add about 0.2% of GDP to the deficit each fiscal year after 2025-26.
Excluding lower income and additional spending not included in the 2024 budget, the federal government's fiscal stability is "very precarious."
The latest data shows that the Canadian economy exceeded expectations in May. According to Statistics Canada, Gross Domestic Product (GDP) grew by 0.2% in May, following a 0.3% increase in April, making annualized growth of 2.2% in the second quarter possible.
Douglas Porter, Chief Economist at BMO Capital Markets, said that this latest economic downturn is similar to the 'near recession mistakes' of the early 2000s (bursting of the tech bubble) and 2015-2016 (crash of oil prices).
"In all three cases, the commodity industry has been weak but not sharply downward, and the service sector has managed to continue to grow, helping to prevent a complete economic downturn," he said.
Banks are also starting to say that immigration is putting pressure on Generation Z.
Since Immigration Minister Marc Miller took office last year, promises to keep inflows of new immigrants manageable have only made the situation worse.
In 2023 alone, Canada admitted 1.3 million people, with a population increase of 3.2%, which is more than three times that of the United States. This speed was unimaginable a few years ago: since 2000, the number of temporary foreign workers and international students has increased sevenfold. The slow-rising numbers surged in 2015 and became especially steep after the pandemic.
The young population of the country has been particularly squeezed.
At least, banks are beginning to pay attention to the adverse effects of population inflows on Canadian youth. In April of this year, Derek Holt, economist at the Bank of Nova Scotia, pointed out that the number of teenage jobs decreased by about 28,000 in the previous month. This may not be as prominent (as the under 25s are less closely related to housing and consumer markets than other groups), but he still proposed several possible explanations.
Holt suggests that the specific timing of data collection during spring break may have exaggerated the numbers, or the recent surge in temporary residents "has reduced opportunities for teenagers in seasonal spring break-related employment."
"If so, the situation of the future young population will depend in part on whether the federal government can successfully reduce the number of temporary residents to the target level," he concluded.
In early July, Robert Kavcic, senior economist at BMO, analyzed the teenage group aged 15 to 24. He found that teenage employment increased by 25,000 positions in the past year, but the labor force grew by 100,000 people during the same period. Therefore, the teenage unemployment rate has risen to 13%.
"Strong labor market inflows undoubtedly make it more difficult for some teenagers to find summer jobs in their usual industries," he said.
Kavcic pointed out that the current situation is not as bad as in 2009, when the teenage unemployment rate reached 15%, and it is not as severe as the 30% during the epidemic. Indeed, the original data was worse. But at that time, young people did not face an extremely surplus labor market, and the employment situation of young people improved after the economic recession in 2008.
Now, the situation is deteriorating in the years after the epidemic. The weakness of private investment and productivity undoubtedly exacerbates the problem of insufficient youth employment, but post-epidemic immigration policies are like filling the pits with a large truck. The situation was not good before, and now it is not only not good, but also crowded.
At least, the minister is aware of the country's restrictions. "We need to take a step back and look at the historical level of immigration," he said in July. In the same month, he told Bloomberg that student visas should not be seen as an immigration channel, and "people should come here to receive education and then bring these skills back to their country." At other times, he compared the country's use of temporary foreign workers to addiction.
Prime Minister Justin Trudeau seems to agree. "In recent years, we have seen a sharp increase in temporary immigration," he said in April. "The growth rate of both temporary foreign workers and international students far exceeds Canada's carrying capacity."
Miller tried to correct the problem through fine-tuning. He announced last year that the growth would be limited to 0.5 million people (still about 70% more than the 0.3 million new immigrants in 2015). In January of this year, he implemented an "upper limit" on international student permits to "stabilize the growth from education." But this did not solve the problem: the total permits issued in 2024 (360,000) are expected to be higher than the total study permits in 2015 (352,330), and the data in the past five months show that the permit issuance rate this year is faster than before.
As for the temporary foreign worker plan, it has received a very slight brake.
In order to limit the impact of international students on the domestic labor market, Miller has at least tried to correct the situation where the plan has turned into another source of cheap labor. International students, who were limited to 20 hours of work off-campus during the semester, were exempt from this limit in 2022 - about 80% of students took advantage of this opportunity to work beyond the old limits.
Miller restored the 20-hour limit in the fall of last year, not to fully restore it to the next academic year, but to raise the limit to 24 hours - "to help offset the cost of living in Canada." Although the plan was originally intended to serve people who could afford to educate themselves, Miller also increased the amount of money students need to study in Canada from $10,000 to $20,000, but this threshold can be met through private loan schemes, so the effect is limited.
At the same time, Canadian young people will continue to bear the consequences of high inflows. Fruitless job search stories filled the Internet - now similar situations have also appeared in the media (Guelph Today found a local student who sent 250 applications before finding a summer job). The Federal Canada Summer Jobs Program will continue to provide some relief, but is subject to identity-based priority restrictions.
The poor employment prospects will continue to exacerbate the already poor housing situation, including short-term leases and building progress far behind population growth. In the long run, less employment and housing prospects may stifle the financial situation of contemporary youth, causing them to miss key milestones in their lives.