Canada’s Population Declines as Immigration Curbs Create Economic Headwind

Canada is facing a new economic headwind as population growth turns negative for the first time outside of the pandemic era, raising concerns about near-term economic momentum.

According to a report released Wednesday by Desjardins Group, Canada’s population declined by 76,000 people in the third quarter, marking the largest quarterly drop ever recorded. The only other population contraction in the past 80 years occurred during the Covid-19 pandemic.

The decline was largely driven by a sharp reduction in non-permanent residents (NPRs), particularly foreign students. Desjardins noted that the number of study permit holders fell by 143,000 during the quarter, reflecting the impact of tighter federal policies.

“The recent slowdown in NPR numbers suggests that the federal government’s new targets for temporary residents are increasingly taking effect,” the report said. The share of non-permanent residents in Canada’s population declined to 6.8% in the third quarter, down from 7.3% in the previous quarter.

Ottawa aims to reduce this share to 5% by the end of 2027, a move that could improve output on a per-capita basis and ease some inflationary pressures.

However, Desjardins cautioned that weaker population growth is also likely to weigh on the broader economy, particularly in the near term.

“This will add to existing headwinds — from trade policy uncertainty to the mortgage renewal cycle — factors that are expected to weigh on growth and remain top of mind for central bankers,” the report said.