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Immigration Curbs Cloud Canada’s Outlook

Canada Monthly Market Commentary

October 31, 2024 2 Minute Read

The full impacts from Canada’s recently announced immigration curbs are still being analyzed but revisions to economic growth expectations are most certainly on the way. The changes planned by the federal government are mainly twofold involving material reductions to the permanent and temporary resident programs. Canada is now looking to reduce its permanent resident targets from 500,000 in each of the next two years by over 20% across all its intake streams. Simultaneously, official temporary resident targets are being set for the first time to lower the share of temporary residents to 5.0% of the population from its current level of 7.3%. This will translate to net outflows of more than 445,000 temporary residents in 2025 and 2026. If this plan were to be fully realized, the cumulative impact would see Canada’s population contract modestly for the time in over seven decades.

Such a sharp and sudden reversal from 3.0% population growth this year down to 0.2% declines for the next two years would have wide-reaching implications for the Canadian economy. Consensus expectations prior to the announcement was for economic growth to strengthen to around 2.0% annualized in 2025. However, with likely revisions to labour supply, consumptions levels and housing demand, these economic growth projections are expected to be downgraded. Some economist groups had made early estimates that GDP growth forecasts may potentially have to be cut by 1.0% for the upcoming years. As economists continue to digest the news, the main determining factor for the magnitude of needed revisions lies with how quickly and successfully all these curbs might be implemented.

On the inflation front, the Bank of Canada only expects limited impacts as a lower population will affect both demand as well as supply, largely balancing each other out. This bodes well for continued interest rate decreases following the Bank of Canada’s latest 50 bps cut to bring the policy rate to 3.75%. With headline inflation at 1.6%, the central bank is now focused on keeping inflation at target and will need to continue lowering the policy rate until it falls back within its neutral range of between 2.25% and 3.25%.

Meanwhile, momentum has started to build in the commercial real estate investment market that has seen increased investment interest and capital formation taking place across Canada. According to CBRE’s Q3 2024 Canadian Cap Rates & Investment Insights report, aggregate national cap rates remained largely flat with the all-properties yield easing 1 bps quarter-over-quarter. However, not all asset classes saw yields compress as office cap rates edged slightly higher and multifamily cap rates held relatively stable. Modest decreases were generally seen in seniors housing, industrial and retail assets.

Economic Highlights:

  • Headline inflation dropped to 1.6% in September 2024 while core measure largely held flat with CPI-median at 2.3% and CPI-trim at 2.4%.
  • Employment rose by 46,700 jobs in September 2024 and the unemployment rate eased slightly to 6.5%.
  • Retail sales rose 0.4% month-over-month in August 2024 with advanced estimates indicating a similar 0.4% increase in September.

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