Imagining Canada's Economy Without Immigration

OTTAWA, May 15, 2018 /CNW/ - If Canada were to shut its doors to immigrants completely, its labour force and economic growth would shrink significantly. A new report by The Conference Board of Canada estimates that economic growth would slow from a trend rate of 1.9 per cent to an average of 1.3 per cent annually.  

"While it is unlikely that Canada would stop immigration completely, building this scenario helps us better understand the contributions of newcomers to Canada's economy," said Kareem El-Assal, Senior Research Associate, Immigration, The Conference Board of Canada. "If it stopped immigration, Canada would experience a shrinking labour force, weak economic growth, and greater challenges funding social services such as health care."

Highlights

• By 2034, immigration will account for 100 per cent of population growth as the number of deaths in Canada is expected to exceed births.
• Canada's potential economic growth would slow from 1.9 per cent to an average of 1.3 per cent annually without immigration.
• In a no-immigration world, 26.9 per cent of the population would be 65 and over by 2040.

The economy has grown in real terms by about 2.2 per cent annually over the past five years. The combination of Canada's aging population and low birth rate is hindering labour force and economic growth. In the decades to come, real GDP growth is expected to average 1.9 per cent assuming Canada continues to gradually increase its inflow of newcomers. However, if Canada does not welcome any immigrants over the next 20 years, Canada's economic growth would slow to an average 1.3 per cent annually.

The report, Canada 2040: No Immigration vs. More Immigration, shows that in a no-immigration world, Canada's population would age more rapidly. By 2040, 26.9 per cent of the population would be 65 and over, compared with 22.4 per cent if Canada gradually increases its immigration levels. Meanwhile the ratio of workers to retirees would drop from 3.6 to 2.0.

Under this scenario, paying for social services such as health care, which becomes more expensive as the population ages, would be even more difficult for Canada. Governments across Canada would likely need to increase taxes to compensate for the declining number of workers. Additionally, with a shrinking labour force, modest domestic demand, and the prospects of fiscal pressures and tax hikes, firms would likely forego operations in Canada, resulting in lower levels of business investment.

To help offset the negative economic and fiscal impacts of a shrinking labour force in a no-immigration world, Canada would need to increase productivity through technological advancement to substitute workers. However, even with optimistic productivity assumptions, replicating the potential output Canada could achieve through positive labour force growth would require significant increases in both public and private investments—a situation that is unlikely in a low economic growth and potentially higher tax environment.

Currently, immigration accounts for 71 per cent of Canada's population growth and has accounted for as much as 90 per cent of labour force growth in recent years. By 2034, the number of deaths in Canada is anticipated to exceed births and immigration is expected to account for 100 per cent of population growth. Boosting immigration to 1 per cent of Canada's population (about 400,000 immigrants per year) by the early 2030s—up from 290,000 in 2017—would help to keep Canada's population, labour force, and economy growing at a modest rate.

The Conference Board of Canada is hosting the Canadian Immigration Summit 2018 on May 30-31 in Ottawa to explore how to strengthen Canada's immigration system.

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SOURCE Conference Board of Canada