Problems caused by rapid immigration

Canadian Prime Minister Justin Trudeau has fuelled economic growth and plugged gaps in the labour market by ramping up immigration, but now new arrivals are straining public services and contributing to an overheating economy, economists say.

Since taking power in 2015, Trudeau has brought in an estimated 2.5 million new permanent residents, driving the population above 40 million. Canada’s population grew at its fastest pace since 1957 last year, placing it among top 20 fastest growing countries in the world, Statistics Canada said, in part offsetting the effects of ageing residents who are retiring and adding to healthcare costs.

In large part thanks to immigration, Canada has matched the United States with an average GDP growth of just over 2% over the past decade, well above the 1.4% G7 average, according to Marc Ercolao, an economist at TD Economics. But problems caused by rapid immigration are beginning to show. First of all, the Bank of Canada struggled to pin down the impact of the newcomers as it tried to cool economic growth, according to a Reuters report. Bank of Canada Governor Tiff Macklem has said immigration adds to both supply and demand, but the overall effect has increased the need for higher interest rates. While immigrants helped ease a labour shortage, they added to consumer spending and housing demand.

“If you start an economy with excess demand (and) you add both demand and supply, you are still in excess demand,” he said about immigration earlier this month after hiking rates to a 22-year high of 5.0%.

The more concrete problems are the growing strains on transit, housing and healthcare, issues that have begun to dog the federal government as municipal and provincial leaders increase calls for more funding to address them.

“If we want to do more immigration, fine, but let’s have a suite of policies” that increase infrastructure investment for “transit, housing, healthcare... schools,” said Chris Ragan, director of the Max Bell School of Public Policy at McGill University in Montreal and an adviser to the Conservative Finance Minister Jim Flaherty in 2009-10.

“Our communities and our economy are made stronger every day by people who chose to move to Canada,” said a spokesperson for the Finance Ministry. Most “will contribute to Canada’s economic prosperity and... help address the labour shortages”, the spokesperson said.

Earlier this month, under pressure from Toronto’s new mayor, Trudeau’s government pledged nearly C$100 million ($76 million) to the city to help house refugees who had been sleeping on the street. One-fifth of Canadians in the publicly funded healthcare system do not have a family doctor, the Angus Reid Institute research firm said last year. In Toronto, Canada’s largest city, an average driver lost 118 hours in traffic in 2022, up 60% on the year and the third-highest in North America, data analytics firm Inrix says. While immigration adds to annual GDP, per capita GDP has grown only 2.4% since the first quarter of 2016 compared to 11.7% for the United States. That means Canadians’ wealth, or their standard of living, is rising more slowly than in the US, adds Reuters.

“The Canadian economy on a per-capita basis is flat on its back,” said David Rosenberg, chief economist and strategist at Rosenberg Research. Through population growth “you can create this mirage of economic prosperity, but in the end that’s what it is, a mirage,” he said.

Canadian Prime Minister Justin Trudeau shuffled much of his cabinet on Wednesday, adding focus on economic issues like housing and the rising cost of living after almost eight years in power and amid sagging poll numbers. Trudeau, whose left-leaning Liberals have been in power since November 2015, kept heavy hitters such as Finance Minister Chrystia Freeland, Innovation Minister Francois-Philippe Champagne and Foreign Minister Melanie Joly in their cabinet portfolios.