If Canada’s population isn’t shrinking, our economic numbers aren’t so good after all

Atakan Bakiskan is a doctoral student in economics at the University of Toronto.

Just when we thought Canada’s population was falling by 0.5 per cent over the past year as of July – it turned out to be the other way around: it grew by that amount, as the improved counting of non-permanent residents revealed.

The latest upward revisions to population estimates by Statistics Canada are substantial enough to change the picture of our economy: The tiny bit of positivity we have had recently in our numbers may prove greatly exaggerated.

The revisions revealed that it was not productivity growth that was doing all the heavy lifting in economic growth lately. It was also population growth – more people were coming into the country and so aggregate incomes were rising as a result. In fact, with the recent adjustment to population estimates, year-over-year growth in GDP per capita in the second quarter looks to be less than 1 per cent, – just half of the 2 per cent we initially thought.

Put differently, it is evident that Canada has not yet found a remedy for its decade-long weak productivity problem, and as population growth slows, it will drag economic growth down along with it.

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The Canadian economy is already losing momentum. Flat GDP in July and a 0.2-per-cent uptick in August from the previous month imply a roughly 2-per-cent annualized pace for third-quarter growth, down from 3.3-per-cent in the second quarter. Annualized growth in the fourth quarter will likely drop below 1 per cent, owing to U.S. tariffs.

An upward adjustment to population estimates also means there is more slack in the labour market than initially thought. The vacancy-to-unemployed ratio, which is a surefire leading indicator for wage growth, is already down to roughly 0.33 (around one job vacancy for every three unemployed people), and the revision, if anything, nudges it lower.

Therefore, there is more room for wage growth to come down – not to mention that, at an annualized pace of 2 per cent in August, year-over-year growth in average hourly wages is already at its lowest since 2017, outside of the pandemic. With a headline inflation rate of 3 per cent year-over-year, and wage growth having fallen to 2 per cent, the real income squeeze for Canadian households is not great news for consumer spending.

Only 16 per cent of businesses in the second quarter reported that they had faced any labour shortages, according to data from the Business Outlook Survey. That’s down from 21 per cent in the first quarter, 22 per cent in the fourth quarter of 2025 and well below the 46-per-cent peak back in the third quarter of 2022. Inflation-adjusted wage growth is already in negative territory, and the slowdown in population growth is expected to accelerate.

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On top of that, Ottawa is aiming to bring down the share of non-permanent residents to below 5 per cent by the end of 2027; until last month, we thought the share was 6.2 per cent, but now we find out it is 6.7 per cent. Does that mean tighter immigration measures are coming? If so, given that we have not solved our productivity issues, the economy could be in for more pain ahead.

As for the Bank of Canada, if its governing council intends to follow in the Fed’s footsteps and opt for a quarter-percentage-point hike at its Oct. 28 meeting, then there are many good reasons not to rush into it. Given how much the numbers can shift, the best thing to do is to wait and watch the data for price signals (for example, wage growth) to tell us more about the economy.

The labour market is simply not tight enough for the current energy price shock to spread through to wages. Since changes in monetary policy take some time to work through the economy, raising interest rates ahead of an economic slowdown could be a major mistake. No need to burn the house down just to roast the pig.

And by not following the Fed, and allowing interest rate differentials to widen and the loonie to weaken – would that be such a bad thing when Canada needs a competitive advantage to get out of its chronically weak productivity? It might now be the time to take the sacred cow to the slaughterhouse – maintain low interest rates, let the Canadian dollar weaken, keep fiscal policy expansionary and pursue supply-side economics.