OTTAWA - The Canadian government's recent commitment to lower immigration levels could hinder the country's economic growth, according to an economist. The federal budget, presented last week, reaffirmed a target to reduce the share of temporary residents in Canada to five percent of the total population by 2027. This is a delay from the previous timeline, which aimed for a reduction by late 2024.

The plan includes admitting 385,000 temporary residents, including workers and students, in 2026, followed by a decrease to 370,000 in the subsequent two years. The 2026 target consists of 230,000 temporary workers, a significant drop from the nearly 368,000 planned for 2025.

Stephen Brown, deputy chief North America economist at Capital Economics, noted that the growth of temporary residents is likely to exceed the government's targets. He explained that the outflow of existing temporary workers and students has not been sufficient to balance the inflow. "It requires a strong dose of political will to meaningfully reduce the number of temporary workers in the country," Brown said.

If the government successfully reduces the number of temporary workers and students, projections indicate that Canada’s population could remain stable over the next two years. Brown warned that this stagnation could negatively affect economic growth due to a shortage of new workers and ongoing productivity challenges.

The budget also proposes to cut the number of international study permits by nearly half through 2028. This reduction could limit job competition for Canadian youth, who have seen their unemployment rate rise to 15-year highs in September, with slight improvements in October. Brown stated, "As the pool of temporary workers dries up, then young Canadians should have a better time finding positions."

RBC economist Rachel Battaglia mentioned that a decrease in international study permits might help alleviate rental prices in cities with large student populations. However, Brown cautioned that this could deter developers from constructing new rental apartments, which primarily serve students and new workers. He emphasized that while the government is taking steps to support rental construction, there are limits to how much population and rental growth can be constrained before it affects building decisions.

Battaglia characterized the government's new immigration plan as a "far smaller shift in policy than last year’s overhaul." She noted that one-time exemptions would allow some existing temporary workers and students to transition to permanent resident status, which could mitigate the impact of a projected population freeze over the next two years.