Immigration Is Helping Shield Canada From Global Slowdown
Rising numbers of immigrants and a partial focus on more potentially productive ones has expanded the workforce and boosted the economy
Canada largely avoided the doldrums that afflicted other advanced economies last year amid a global slowdown. Immigration is a big reason why.
Economic growth over the long term generally has two sources: an expanding workforce and advances in productivity, or output per hour worked. When more people are employed, they produce more goods and provide more services, earn more and spend more, creating demand for more workers.
Canada owes its relatively solid pace of economic growth in recent years to gains in the labor force rather than productivity, which has stagnated.
Canada’s labor force grew 2% last year according to data from the OECD, faster than the U.S. and Japan, the only other two countries for which the organization had data available for 2019. Most of that was fueled by population growth, about 80% of which comes from immigration.
e growing head count, in turn, has supported growth in consumer spending and a rebound in home sales and prices that began during the second half of last year. That helped Canada overcome a sharp slowdown in trade, muted business investment and a cooling global economy last year.
“Without the immigration boom, the Canadian economy would be lost right now,” said David Rosenberg, chief economist at Toronto-based Rosenberg Research and Associates. “It’s not just the main game in town, it’s the only game in town.”
In any one year, economic growth is affected by many factors. The 2019 global slowdown largely resulted from trade tensions and China’s loss of momentum. The U.S. Federal Reserve and several other central banks responded with interest rate cuts or other stimulus measures. The U.S. economy, which grew 2.3% last year, also benefited from the lingering effects of recent tax cuts and government spending increases.
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Canada has enjoyed relatively high population growth—an annual average of around 1% since the early 2000s. It quickened after the Trudeau government bumped up immigration levels in 2016, reaching 1.4% in 2018, the fastest among the Group of Seven advanced economies, according to the World Bank. While full 2019 figures aren’t available, recent Canadian government estimates place the annual rate at 1.5% in the year ended in October.
Canada, with a population of 38 million, accepted about 340,000 new permanent residents in 2019, up from 270,000 in 2015. It also issued roughly 810,000 permits to international students and temporary workers in 2019, up from about 470,000 four years earlier.
Economists say that influx helped Canada’s economy expand 1.5% in 2019, the second-best pace in the G-7 after the U.S., according to International Monetary Fund estimates. The Trudeau administration’s higher level of immigration has provided stimulus that’s roughly comparable to an interest-rate cut of between a quarter percentage point and a half point, Bank of Nova Scotia economist Derek Holt said.
By contrast, economic growth was just 0.5% in Germany and 1.2% in the euro area as a whole, according to the IMF, where waves of asylum seekers have hardened public attitudes on immigration.
Still, last year marked a loss of momentum amid the global slowdown. From 2010 through 2018, Canada’s annual growth in gross domestic product averaged 2.2%, slightly below the U.S. and above the rest of the G-7, according to the World Bank.
The Bank of Canada has held its benchmark overnight interest rate since October 2018 at 1.75%, the highest among major advanced economies. Many analysts now see a rising likelihood of central bank interest rate cuts this year, including possibly by Canada, due to the coronavirus outbreak’s risk to global growth. The Bank of Canada’s next interest-rate announcement is due on Wednesday.
One way population growth bolsters Canada’s economy is through its housing markets. Home prices are rising again in Toronto and the surrounding area and have stabilized in Vancouver after mortgage rules aimed at limiting risky borrowing weighed on prices and sales in 2018 and early 2019.
“With more people living in the country, demand for housing has naturally increased,” said TD Bank chief economist Beata Caranci.
Economists say Canada benefits from a system that gives preference to immigrants with the ability to find and keep a job, based on criteria such as education, language skills and whether they have a job offer. About 60% of the immigrants to Canada are selected with this criteria, a figure that also includes those immigrants’ immediate family members. The rest come as refugees or to be reunited with family members already in Canada.
Among the recent arrivals in Canada is Albert Cuesta Reig, a Spaniard who came in 2016 to complete a master’s degree in business administration at the University of Toronto. After receiving a three-year work visa he launched an app-based travel services business—something he says wouldn’t have been possible in the U.S., where he had studied for a year on an exchange program.
In the U.S., “they have amazing schools, but then it’s hard to stick around and make use of the network you’ve built there,” he said, blaming restrictive immigration rules. Mr. Cuesta Reig is now applying to become a permanent resident in Canada.
Write to Kim Mackrael at firstname.lastname@example.org