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This transcript has been generated using machine learning technology. While this technology was trained with CIBC terminology, it may contain errors.
Introduction: Welcome to Eyes on the Economy by CIBC Capital Markets, a podcast series dedicated to addressing current issues in a concise format, helping to make sense of the evolving economic complexities, so that you can take action.
Avery Shenfeld : Hello, everyone. Welcome to another edition of CIBC&#8217;s Eyes on the Economy podcast. I&#8217;m CIBC&#8217;s Chief Economist, Avery Shenfeld, and I&#8217;m joined by our Deputy Chief Economist, Benjamin Tal, to talk about some interesting work he&#8217;s done that refutes some of the common assumptions about where Canadian population growth has been and where it&#8217;s going, with some implications for what that means for the economic growth forecast and the labor market in Canada ahead. So for those who weren&#8217;t following the story closely, Ben, why don&#8217;t we just start off with explaining to people how Canada ended up with more immigrants and a larger upswing in population than was originally intended and why we&#8217;re now trying to winnow that down again.
Benjamin Tal: Yes, know demographics as you remember used to be very simple. You simply continue the trend line. That&#8217;s not the case anymore of course. It&#8217;s much more interesting. Let&#8217;s establish one thing to start. Canada needs immigration like oxygen. But there is a such thing as too much of a good thing. And that&#8217;s exactly what happened following COVID, you know, real or imaginary labor shortage led to a situation in which we opened the gates. We got 1.5 million new arrivals during the course of breakfast basically. We all remember that, we all know the story. Just to put it in perspective, long-term average below 2019 in terms of population growth was between 0.7 to 1%. At the peak after COVID, we reached 3.5%. That was absolutely crazy. And the impact, of course, is significant. We have seen it in the labor market. We have seen it in rent inflation, as we all know. And very important, municipalities got basically an inaccurate target. Municipalities need time to plan, to develop. They need about 10 years. In 2013, Stats Canada went to those municipalities and said, your population growth over the next 10 years will be X. It was X plus 1.5 million people. So you cannot blame municipalities for not planning for something that was not in the plan. That was the story and now we&#8217;re starting to reverse it.
Avery Shenfeld: Okay, and at the end of late in Trudeau&#8217;s term, the Ottawa started to recognize that we had far more students and temporary foreign workers than they had anticipated. And some policies were put into place in late in Trudeau&#8217;s term, and then of course tightened further under Carney that were intended to essentially reverse that increase in the population of these non-permanent residents and bring us back to something closer to the longer term trend line. For population growth prior to that upsurge in those students and temporary workers. And the original idea seemed to be that we would have two years, 25 and 26, in which that number of non-permanent residents would actually be winnowed down as those people had their visas expire and left the country. And we would then pave the way, presumably, for some normal population growth in 2027. But you&#8217;ve been doing work going back over the past year or more. That suggests that the actual reduction in non-permanent residents is proceeding more slowly than either that government plan or what Statistics Canada has estimated, and they may be revising those numbers. Can you explain to our listeners where that tracking error actually came from? And what does that actually mean for population growth in the past two years?
Benjamin Tal : Yeah, that&#8217;s very important. So yes, you&#8217;re absolutely right. The government woke up finally. We were very vocal, as you recall, about that. We said that the 3.5 % population growth is simply unsustainable. The economy cannot take it. And the government listened. The government basically corrected it. We have seen a significant reduce in new visa issuance. We have seen a limited post-graduation work permits. And clearly, the limited of campus work hours for international studies and students. So all those things worked, and basically what Stats Canada is telling us, mission accomplished. You know, we have a population growth in 2025, basically negative, and basically they&#8217;re saying it’s continuing in 2026. Of course Avery, as you know, we don&#8217;t buy it. We don&#8217;t believe that. We think that actually population growth is going to be positive. Why? And that&#8217;s extremely important to understand. Stats Canada is under-counting actual number of non-permanent residents in a very significant way for three important reasons. First of all, if you are a foreign student and you come from places like India and other places where you simply don&#8217;t talk to the government, you simply don&#8217;t talk to the government. You don&#8217;t answer the census. Second, very important to understand for people who are interested in population growth. When the census comes to those new immigrants, non-permanent residents, foreign students, and they ask, is this your permanent residence? Most of them say no, because the permanent resident is their parents&#8217; house in New Delhi. And therefore, they are not answering the questionnaire. Nobody&#8217;s counting them. And the most significant factor is that if you are a foreign student from India, China, Mexico, and your visa expires, Stats Canada until recently assumed that within three months you leave the country. That&#8217;s not the case. Most of them stay. And therefore, we are overestimating the outflow. And that&#8217;s why we got a negative number. So if you combine all those forces, clearly we are underestimating the number of non-permanent residents in this country in a very significant way. And finally, finally, finally, Stats Canada is telling us in September, we are going to reverse it upward, basically taking into account all those forces. Again, Stats Canada itself admits that they are undercounting non-permanent residents by maybe 40%. Now, Avery, we don&#8217;t expect them to change everything, to reverse everything. But at least at the margin, the number would be higher. This is important because they are trying to take the number of non-permanent residents from 7% of population to 5%. But if the starting point is more than 7%, it will take you longer. And that&#8217;s exactly where we are. Very important to understand.
Avery Shenfeld: So presumably that means that there&#8217;s still a lot more reduction ahead of us than most people assume in that number of non-permanent residents, that we&#8217;ll see a longer runway for those people to actually leave the country. So, what does that tell us about population growth in 2027? Because a lot of people think that we had a two-year plan for very low or even negative population growth. And now we&#8217;re due for a rebound in 2027. But what do you think 2027 is going to look like?
Benjamin Tal: Yes, you know, we talk to clients a lot and there is this assumption that everything will be back to normal in 2027, 2028 and everything will be great. Not so fast. If we have more non-permanent residents, than we believe that official numbers are telling us and I&#8217;m convinced that that&#8217;s the case. As you know, Avery, we have been very vocal about it for a long period of time. This number is now higher than 7%. If your target is 5%, it means that it will take you longer to get to 5%, which means that in 2027, population growth will have to continue to slow down in order to clear the market. And that&#8217;s basically where we are. Significant implications. I don&#8217;t buy the argument that by 2027, we are going to go back to the long-term average. It will take longer with major economic implications.
Avery Shenfeld: So then of course there are silver linings to every cloud. And in this case, it will, of course, slow economic growth to some extent in twenty twenty-seven because we won&#8217;t have those additional consumers in added to the economy. We&#8217;ll have slower demand growth just tied to that weaker demographics. But it does have implications for the labor market to some extent and the unemployment rate if we don&#8217;t have as many as much population growth. So what is that telling us then about the potential for the labor market to actually get closer to full employment perhaps than people think in 2027?
Benjamin Tal: Yes, so if in 2027, if we are right, and population growth will be weaker than many people expect, this means that the labor force, growth in the labor force will also be weaker. This of course means that the breakeven, the pace of labor creation, job creation is going to be lower. The unemployment rate is going to be lower than currently expected by many. So to an extent that 2027 will disappoint on population growth, this actually going to be positive news when it comes to the labor market. Very important to understand. It seems for some reason that many people in the market believe that 2027 will be the year of going back to normal. That&#8217;s simply inaccurate.
Avery Shenfeld: Yes, and I think and there are other, of course, even more complicated issues in how the labor force survey then takes the population numbers and it lags and so on. So there&#8217;s other complications that we&#8217;ll leave for another day. I think we&#8217;ll wrap up this issue today. Thanks for to our listeners for joining us and listening to this latest issue. Until next time, we&#8217;ll be keeping our eyes on the economy and calling it as we see it.
Disclaimer: The information and data contained herein has been obtained or derived from sources believed to be reliable, without independent verification by CIBC Capital Markets and, to the extent that such information and data is based on sources outside CIBC Capital Markets, we do not represent or warrant that any such information or data is accurate, adequate or complete. Notwithstanding anything to the contrary herein, CIBC World Markets Inc. (and/or any affiliate thereof) shall not assume any responsibility or liability of any nature in connection with any of the contents of this communication. CIBC World Markets Inc. or its affiliates may engage in trading strategies or hold positions in the issuers, securities, commodities, currencies or other financial instruments discussed in this communication and may abandon such trading strategies or unwind such positions at any time without notice. CIBC Capital Markets is a trademark brand name under which different legal entities provide different services under this umbrella brand. Products and/or services offered through CIBC Capital Markets include products and/or services offered by the Canadian Imperial Bank of Commerce and various of its subsidiaries. For more information about these legal entities, and about the products and services offered by CIBC Capital Markets, please visit www.cibccm.com. Speakers on this podcasts are not Research Analysts and this communication is not the product of any CIBC World Markets Inc. Research Department nor should it be construed as a Research Report. Speakers on this podcast do not have any actual, implied or apparent authority to act on behalf of any issuer mentioned. The commentary and opinions expressed herein are solely those of the individual(s), except where the speaker expressly states them to be the opinions of CIBC World Markets Inc. Speakers may provide short-term trading views or ideas on issuers, securities, commodities, currencies or other financial instruments but investors should not expect continuing analysis, views or discussion relating to these instruments discussed herein. Any information provided herein is not intended to represent an adequate basis for investors to make an informed investment decision and is subject to change without notice. CIBC World Markets Inc. or its affiliates may engage in trading strategies or hold positions in the issuers, securities, commodities, currencies or other financial instruments discussed in this communication and may abandon such trading strategies or unwind such positions at any time without notice.

Canada’s population reality check

CIBC Economics

Avery Shenfeld

Managing Director and Chief Economist

CIBC Capital Markets

Benjamin Tal

Deputy Chief Economist

CIBC

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