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Canada’s Reduction in Temporary Residents May Impact GDP and Inflation

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Canada's Reduction in Temporary Residents May Impact GDP and Inflation

A recent report by Desjardins has highlighted potential economic consequences of Canada’s plan to reduce the number of non-permanent residents (NPRs). The report suggests that this reduction could significantly impact real GDP growth and inflation, with a particular emphasis on shelter costs.

The Desjardins report notes that while a decrease in NPRs might boost per capita GDP and real wage growth, the evidence supporting the notion that higher wages will attract more people back into the workforce remains limited. Current underemployment rates are historically low, and many individuals not currently seeking employment are sidelined due to illness or personal responsibilities, rather than a lack of incentive from wage levels.

Key sectors employing a significant number of NPRs, such as accommodation, food services, and retail, could face increased pressure due to rising wages and labor shortages. These industries were already heavily impacted by the COVID-19 pandemic and have seen a rise in insolvencies in 2024. The reduction in low-cost, temporary labor could exacerbate these challenges, potentially leading to higher operating costs and increased prices for consumers.

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Despite these challenges, the report also points out a potential silver lining. The necessity to operate with fewer low-cost labor options may drive innovation within these sectors. Businesses could be compelled to adopt new technologies and efficiencies to mitigate the impact of labor shortages. This shift could lead to longer-term benefits, including improved productivity and competitive advantage on the global stage.

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However, the short-term implications are concerning. With fewer NPRs contributing to the labor market, sectors that heavily rely on this workforce may struggle to maintain their current levels of service and production. This could lead to increased costs for consumers, further contributing to inflationary pressures.

The housing market is another area likely to be affected by the reduction in NPRs. Fewer NPRs could ease demand for rental properties, potentially stabilizing or even reducing shelter costs. However, the overall impact on the housing market will depend on various factors, including immigration policies, economic conditions, and regional housing supply.

The Desjardins report underscores the complexity of balancing immigration policies with economic needs. While reducing NPRs might offer some benefits in terms of wage growth and per capita GDP, it also presents significant risks and challenges, particularly for sectors dependent on temporary labor.

Policymakers will need to carefully consider these factors as they move forward with plans to adjust the number of non-permanent residents in Canada. The potential for short-term economic disruption is high, but with strategic planning and support for innovation, the long-term impacts could be mitigated.

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For those keeping a close watch on Canada’s economic landscape, the evolving situation with NPRs and its broader implications will be critical areas to monitor in the coming months.

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