Banff 
All good things have their limits, says National Bank of Canada economists in a special Economics and Strategy report.
The report by Stéfane Marion and Alexandra Ducharme finds that Canada is caught in a population trap, a situation where rapid population growth outstrips the available infrastructure and capital stock.
National Bank of Canada
The report comes as Canada’s population grew more than 1.2 million last year (including temporary residents), and the federal government plans to continue to welcome 500,000 permanent residents beyond 2025.
Canada experienced a remarkable 3.2% population growth in 2023 – a leap not seen since Newfoundland’s entry into the federation in 1949, exceeding the OECD average by five times and resulting in a 1.2 million increase.
In the report, the authors raise questions about Canada’s economic absorption capacity as the standard of living has been at a standstill.
Credit: National Bank of Canada report
The authors expose the challenges of assimilating such numbers into the Canadian economy, particularly in housing. The country is witnessing a historic low in housing starts per new entrant into the workforce, a stark contrast to the past. The federal government’s response has been to boost housing supply, but the scale of the demand necessitates a doubling of construction efforts, a goal that seems far from reach, finds the report.
The authors raise critical questions about Canada’s economic health, saying the stagnation in real GDP per capita over the past six years suggests a deeper issue of poor productivity that might be linked to overly ambitious demographic targets.
The study reveals a seven-year downward trend in the ratio of private non-residential capital stock to population in Canada, noting that the current level is equivalent to that of 2012. In contrast, this ratio has reached an all-time high in the United States.
Credit: National Bank of Canada report
They state, “This means that our population is growing so fast that we do not have enough savings to stabilize our capital-labour ratio and achieve an increase in GDP per capita.”
They say Canada’s predicament mirrors the ‘population trap’ often seen in emerging economies. This imbalance hampers the improvement of living standards and economic progress.
To navigate out of this trap, policymakers need to align population growth with the country’s economic capacity, particularly in sectors beyond housing.
The report finds that to stabilize and enhance productivity, Canada’s annual population growth should ideally be contained within 300,000 to 500,000, a crucial step in securing the nation’s economic future and well-being.
