Trudeau botched immigration surge, Canada’s top bank economists say – Financial Post

2024/01/13 Leave a comment

Hard to make a stronger condemnation than this:

Canada’s current immigration policy — among the most open in the world — is now causing economic damage and needs to be reconsidered, according to the country’s top economists.

Prime Minister Justin Trudeau’s decision to dramatically increase immigration — and allow a flood of temporary workers and international students — without providing proper support has created a laundry list of economic problems, including higher inflation and weak productivity, chief economists at Canada’s biggest banks said Jan. 11 during a wide-ranging panel discussion in Toronto.

“Frankly I’m surprised we screwed it up because we sit in such a privileged position in Canada,” Beata Caranci, chief economist at Toronto-Dominion Bank, told a packed audience at an Economic Club of Canada event.

Unlike many other countries, including the United States, Canada is not dealing with poorly controlled flows of migrants across its land borders and has had time to think about the implications of its policies, Caranci said. “We designed our own policy, we put it in place, we implemented it, and we still screwed it up.

Source: Trudeau botched immigration surge, Canada’s top bank economists say – Financial Post

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How immigration could be impacting the Bank of Canada’s efforts to bring down inflation

2023/07/19 Leave a comment

Of note:

Demand created from a record influx of immigrants could be one factor keeping inflation higher for longer than anticipated, some economists say, though Bank of Canada governor Tiff Macklem doesn’t appear overly worried about it.

Sticky inflation prompted the Bank of Canada on July 12 to raise interest rates by 25 basis points to five per cent — the highest level since 2001. Though the inflation rate has fallen off its peak of 8.1 per cent last summer to 3.4 per cent in May, prices of more than half the goods in the consumer price index, such as meat, bread, coffee and rent, continue to rise, Macklem said in a press conference following the decision.

The central bank now expects inflation to reach its two per cent target by the middle of 2025, instead of the end of next year as predicted in April.

But even as prices for key goods go up, the economy is proving more resilient than expected and demand momentum and consumption growth has been “surprisingly strong,” the bank said in a statement, pushing it to once again hike rates last week.

An increase in immigration could be one complicating factor keeping inflation higher for longer and stoking demand, Bank of Nova Scotia economist Rebekah Young said.

“There is more risk that inflation may be sticky in months and quarters ahead, versus it coming down faster than we thought and newcomers are a part of that story,” she said. “They are certainly adding to what could be keeping (Macklem) up at night.”

Canada welcomed more than one million immigrants in the past year as the federal government sought to address high job vacancies and labour shortages. Young said the country has traditionally used population growth through immigration as a means to increase workers and enhance supply, especially as “massive surges” of inflation haven’t been something policymakers have worried about for decades. But things have gotten more complicated.

“A lot of things are different now,” she said. “The current juncture that we are in, getting inflation back to two per cent is still fraught with uncertainty.”

Macklem last week said he expects the net-impact of immigration growth on inflation to be “roughly neutral,” though he added it is impacting some parts of the economy more than others.

He said that while newcomers filling job vacancies has been good for company margins, easing inflationary pressures, new entrants are also increasing demand for housing, helping boost rent and home prices. It’s “hard to know exactly” the net effect on the economy, he added, but the main message is that immigration is adding to both demand and supply.

“If you start an economy with excess demand (and) you add both demand and supply, you are still in excess demand,” Macklem said. “What we’re seeing is that the excess demand in the economy is more persistent than we thought and so we’ve raised rates in June and July.”

Douglas Porter, chief economist at the Bank of Montreal, said he agrees with Macklem’s assertion that high immigration adds to both demand and supply. But there’s another element the governor “didn’t talk about much,” he said, and that’s a matter of timing.

“(Strong population growth) does tend to affect things like spending and the housing demand almost instantaneously, whereas the supply side might take a little bit longer to kick in,” he said. “A new worker might enter the labour force relatively quickly, but reaching their full potential might take a little bit of time.”

In the short run, strong population growth tends to “push up the price pressures” a little bit, Porter said, but the impact in the longer run is “broadly neutral.”

Porter assessed economies of 20 nations to better understand the link between population growth and inflation and said he found a “very weak positive relationship.” Most of the impact is on the housing market, since there is a “very clear relationship between strong population growth and home prices,” he said.

Still, Porter also said Canada has fared better than most nations in terms of tackling inflation, meaning there are “larger forces at play here, beyond just population growth.”

Source: How immigration could be impacting the Bank of Canada’s efforts to bring down inflation

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Why GDP per capita is becoming the indicator to watch

2023/04/21 Leave a comment

Indeed:

Canada has been the worst performing advanced economy in the Organization for Economic Co-operation and Development since 1976. Governments of all partisan stripes have tried and failed to reverse the trend. If nothing changes, the OECD projects, our economic growth per capita will continue to stagnate for decades to come. This article is part of an occasional series called Per Capita, which examines how and why policy interventions have come up short – and how fresh approaches to economic growth are urgently needed.

A growing cohort of analysts are tempering their enthusiasm for Canada’s recent economic performance for a simple reason: Strong population growth is bulking up the numbers.

Last week, the Bank of Canada projected that real gross domestic product would increase by 1.4 per cent this year, up from a previous forecast of 1 per cent, and by 1.3 per cent in 2024. The central bank said a key factor in its 2023 upgrade was the surge in population, which is expanding the pool of labour and consumers.

Canada’s population rose by just more than one million people in 2022, an annual increase of 2.7 per cent that was the largest since the late 1950s. This is part of a deliberate plan from the federal government to boost population through higher immigration.

For that reason, some economists say they’re paying more attention to growth in real GDP per capita – or economic output per person, adjusted for inflation – than they used to. And on that front, Canada’s economic performance is decidedly weaker: Per capita output in 2022 was roughly the same as in 2017.

The near-term outlook doesn’t show much upside. Even if population growth cooled to 2019 levels, per-capita GDP would still decline for the next two years, based on the Bank of Canada’s projections for output.

“I don’t see that the federal government is focused on per capita GDP, they’re just focused on GDP,” said David Williams, vice-president of policy at the Business Council of British Columbia.

“If you crank up population growth, sure, the economy gets bigger. But that doesn’t mean that we’re not facing stagnating living standards for the majority of Canadians.”

GDP per capita is often used as a proxy for living standards. The metric is positively correlated with life expectancy and well-being – residents of more productive countries tend to live longer and report being happier.

It is not a perfect measure of prosperity. Per capita output in Canada is around three-quarters of that in the U.S., according to data from the Organization for Economic Co-operation and Development, although Canada enjoys an average life expectancy at birth that is roughly five years longer. However, the U.S. is an outlier in life expectancy among wealthier countries.

Canada’s productivity struggles are hardly new and have been debated for decades. Benjamin Reitzes, a macro strategist at Bank of Montreal, recently noted that the average annual growth in real GDP over the past 10 years was 1.8 per cent, but only 0.6 per cent after adjustments were made for population gains.

Ottawa is aware of this issue – and the potential for decades of mediocrity. In the 2022 budget, the federal government mentioned an OECD forecast that predicts Canada will have the weakest per capita growth among its member countries from 2020 to 2060. “The stakes are high. Most Canadian businesses have not invested at the same rate as their U.S. counterparts,” read the budget.

While Ottawa has acknowledged this productivity issue, some economists are calling on governments to focus more on per capita growth and how to bolster it. (The 2023 federal budget did not repeat its mention of the OECD projection.)

“No per capita growth means Canadian living standards are stagnant,” Mr. Reitzes wrote in a recent note to clients. “Historically, policy makers haven’t paid much attention to the per capita metric. Hopefully, that changes soon.”

The federal government is ramping up immigration levels in the coming years, targeting the intake of 500,000 permanent residents annually by 2025. Most of Canada’s population growth last year was driven by temporary residents, including workers and international students.

Ottawa has frequently said that raising immigration levels is necessary to fill jobs and boost economic growth. However, some of its recent policy decisions have made it easier to fill low-wage roles in lower-productivity sectors with temporary foreign workers.

“We’ve normally tried to target the best and brightest,” said Mr. Williams. “But it seems that there’s been a shift in Ottawa toward saying, ‘Hey, let’s fill these very-low-wage, entry-level jobs.’ And that’s a concern.”

Source:Why GDP per capita is becoming the indicator to watch

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