Canada’s economy was already unraveling before the immigration boom, according to CIBC Economics. A new report from the bank argues the downturn was inevitable—cheap credit masked deeper structural issues, and the post-pandemic recoil would have occurred in any event. The bank suggests the non-permanent resident (NPR) boom may have softened the economic damage, not amplified it.
Canadian Economy In Decline Prior To Immigration Boom
Canada’s shrinking GDP per capita is one of the most strongly associated trends with immigration. But CIBC Economics argues the problems started earlier, with productivity already collapsing, and real GDP growth failing to keep pace with population growth.
“Canada’s GDP per capita sits at the bottom amongst its peers,” notes Ali Jaffery of CIBC Economics.
But that’s only part of the story, according to the bank. Jaffery argues the denominator—GDP—already showed weak growth prior to the population surge. Cheap credit pulled economic growth forward, helping to boost the economy while its borders were shut down. However, this led to a predictable slump as rates normalized and borders reopened with more aggressive immigration targets in 2022.
“Challenges to growth and investment spending [were] more tied to a post-pandemic hangover, monetary policy tightening and low commodity prices,” says Jaffery.
Business investment and per capita GDP had begun to slide. Higher interest rates and collapsing commodity prices pushed things further.
“Higher financing costs and weaker commodity prices explain the overwhelming majority of investment underperformance,” says Jaffery. He cites the Bank of Canada (BoC) business surveys, where the most consistent drag on investment intentions wasn’t labour supply, but rate sensitivity and pessimism over future demand.
The report estimates immigration added roughly 1% to GDP by 2024, but it wasn’t enough to overcome the structural weakness already in play.
Canada’s Immigration May Have Propped Up A Worse Job Market, Says CIBC
Canada’s unemployment data looks worse than it appears, suggests the bank. The economy added workers faster than the economy could absorb them, amplifying the unemployment rate. However, the bank says people should focus on the employment rate, which tells a different story.
“By that broader metric, the recent immigration wave has provided a supply-side boost to our economy, partly offsetting declines in the aggregate employment rate by about 1.5%,” explains Jaffery. He adds that even if we make the generous assumption that all temporary resident jobs compete with domestic young adults, the net growth is still 0.7 points.
Translation: Without the surge in non-permanent residents, employment conditions would be even bleaker. A point that’s only easy to appreciate if you’re a psychopath, since it’s like saying, “sure, you’re unemployed—but the economy is better!” But let’s not digress today.
Still, CIBC is blunt about the policy failures around Canadian immigration: Ottawa used student immigration to paper over labour shortages, rather than building a long-term strategy. A problem the bank suggests can be solved by better targeting of specific, skilled labour to fill gaps in Canada’s economy.
CIBC Flip-Flops On Whether Immigration Drove Rents Higher
CIBC hedges on how much blame NPRs deserve for their role in driving rents higher. The report claims NPRs—mostly students and temporary workers—“increased stress in parts of Canada’s supply-starved housing market, mainly through upward pressure on rental inflation.”
The report then immediately hedges, noting the UK and US also saw similar rent surges, despite far less population growth. CIBC ultimately concludes that immigration “didn’t help” with rents.
Source: Statistics Canada; CIBC Economics.
But the bank’s discussion curiously omits two points: the current surge in rents and the role of cheap capital. Now with virtually no population growth today, annual rent growth has re-accelerated to twice the rate of inflation. Apparently, slow population growth now drives rents just as fast as rapid growth did. All roads lead to higher rents.
Let’s revisit Canada’s recent real estate price surge. The low-rate fueled speculative boom sent prices surging mostly during historic low population growth, prior to the policy changes to drive immigration higher. Are we supposed to believe real estate investors were preparing to lose more money to subsidize rentals—until NPRs showed up and ruined everything? Probably not.
Then there’s the income problem. Unlike the boom of wealthy students that Vancouver saw in the 2010s, policymakers intentionally targeted low-income students for the recent NPR boom, hoping to drum up cheap labour. Had anyone taken a break from discussing how much demand there was, they would have noticed the reality was a little different—cities like Greater Toronto saw elevated rental vacancies while Canada experienced record population growth.
Of course, this would imply that policymakers supported a reckless immigration policy in hopes of propping up a policy disaster that created a speculative boom. And that would never happen, right?