In a significant policy pivot, the Canadian government has unveiled its 2025-2027 immigration plan, which aims to reduce the country’s surging population growth by scaling back both permanent and non-permanent resident (NPR) targets. This decision, announced as part of a broader immigration overhaul, has far-reaching implications for the Canadian economy, from potential declines in consumer spending to easing pressures on the country’s rental market. While some analysts predict negative impacts on the labour force and broader economic growth, there are also anticipated benefits, including increased per capita spending and a respite for housing supply shortages, according to a TD Economics report.
Slowing Population Growth: A Dramatic Shift for Canada
For years, Canada has been a leader among advanced economies in terms of population growth, largely due to robust immigration targets. However, TD Economics, explains, “The government’s decision marks a significant shift from the past decade’s population surge, as we now see a conscious move to decelerate growth.” The government’s updated immigration targets will cap permanent resident inflows at 395,000 in 2025, down from a previous target of 500,000. By 2027, the target will further decline to 365,000.
Temporary residents, a major contributor to recent population increases, will also face reductions. Specifically, the plan sets limits on work permits under the International Mobility Program (IMP), which accounts for 40% of NPRs, and caps student visas below 310,000 annually for the next three years. “These changes mean that by 2026, non-permanent residents are expected to make up just 5% of the population, a sharp drop from the current 7%,” adds TD Economics.
Photo courtesy of Statistics Canada
Economic Impact: Balancing Challenges and Opportunities
The recalibration of immigration targets introduces new dynamics for Canada’s economy, particularly in terms of labor supply and consumer spending. “When population growth goes from 3% annually to less than 1%, it naturally puts a cap on labor force growth,” says TD. “Over the past few years, Canada’s economic expansion has heavily relied on labor-driven growth, but with reduced immigration, businesses may now need to focus more on productivity gains to maintain competitiveness.”
The smaller labor pool could lead to a tightening job market, and while this may alleviate some unemployment pressures, it could also heighten competition for available workers. Many economists agree this shift could encourage businesses to invest in automation and other capital improvements, which have historically lagged behind other economies, like the United States. “Reducing reliance on low-wage temporary foreign workers can be a catalyst for innovation,” notes TD. “Companies may be more inclined to adopt new technologies and streamline operations to offset the reduced labor availability.”
Relief for the Housing Market and Potential for Higher Consumer Spending
One of the most immediate effects of slowed population growth is expected in Canada’s housing market. Recent high demand from new residents has led to significant rental price increases in urban areas like Toronto, Vancouver, and Montreal, straining both renters and the housing supply. “The rental market has been overwhelmed in recent years, with rent prices rising beyond reach for many,” says TD. “A slower influx of new residents will ease this demand, allowing rental prices to stabilize and making units more accessible.”
Homeownership demand may also see some indirect relief. While most newcomers initially rent, fewer incoming residents could provide an opportunity for builders to address the housing backlog. “The slowing in population growth doesn’t solve housing affordability on its own, but it gives the market a breather to catch up to demand,” says TD. TD Economics estimates that the recent construction boom may help narrow the gap by around 575,000 units, though a complete resolution remains challenging.
At the same time, per capita spending is expected to increase as a result of fewer residents in the economy. “While a smaller population typically means lower aggregate spending, there’s an offsetting effect as households are projected to spend more individually,” notes the report. This trend could be supported further by a gradual easing of interest rates, which have been climbing for two years.
Challenges for the Education Sector and Long-Term Labour Force Considerations
Not all sectors will see benefits from the new policy. Canada’s post-secondary education sector, which has become increasingly reliant on international students, will likely face financial strain. The cap on international study permits could reduce tuition revenue at universities, many of which have seen sharp increases in enrollment from abroad in recent years. “The cap will create a funding gap for institutions already under pressure from tuition freezes in some provinces,” explains the report. “This policy may inadvertently affect Canada’s talent pipeline, as fewer international students could mean fewer skilled workers for the economy in the long term.”
Long-term labor supply is another area of concern for economists. “Canada’s aging workforce requires a steady influx of younger workers to maintain economic stability,” says TD. “While the new targets address immediate pressures, the country will still need to adjust its immigration policies down the line to support the long-term labor force.”
Balancing Short-Term Disruptions with Long-Term Benefits
In the short term, Canada’s immigration slowdown may result in some economic disruptions. According to TD Economics, the economy could see GDP growth decrease slightly due to the reduced labor pool, with consumption also expected to moderate. However, economists believe that several mitigating factors may counterbalance these potential declines. “As housing demand softens, the reduction in rent and housing price pressures could help reduce inflationary trends,” says the report. Additionally, less demand on housing and public services may support the Bank of Canada’s efforts to stabilize interest rates, creating a favorable environment for borrowers.
Despite the challenges, the government’s shift has some economists optimistic about the long-term impact on the Canadian economy. “We’ve seen a real shift away from immigration policies focused solely on filling short-term labor gaps toward a more balanced approach,” says TD. “By moderating growth, Canada has a chance to address some structural issues and focus on sustainable, productivity-driven economic growth.”
The Bottom Line: A New Direction for Canadian Immigration
As Canada recalibrates its population growth strategy, the country is entering a period of adjustment that will impact sectors across the board. From the labor market to housing, the government’s new immigration targets are poised to create both opportunities and challenges, reshaping the economic landscape.
“These changes are about finding a balance,” says TD. “The shift from population-driven growth to productivity-driven growth marks a step toward sustainable development, even if it brings some short-term pains. Ultimately, Canada’s ability to adapt to these new realities will determine its long-term economic resilience.”
Mario Toneguzzi
Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list. He was also named by RETHINK to its global list of Top Retail Experts 2024.
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