OTTAWA — Canada’s aging population and declining immigration levels are reshaping the country’s economy, threatening to slow workforce growth and reduce its long-term productive capacity, according to a new analysis published by the Bank of Canada.
In an assessment released on October 8, the central bank explained that demographic changes are affecting not only the number of people available to work but also consumer spending, housing demand and the services Canadians will need in the coming years.
Canada’s population growth slowed to just 0.5% in 2025, its weakest pace in more than a century. The Bank attributed the slowdown to two major factors: an aging population and fewer immigrants arriving following changes to federal immigration policies.
For decades, immigration helped Canada offset its low birth rate and expand its labour force. Population growth averaged approximately 1.2% annually over much of the past 50 years before accelerating to as much as 3% during the early 2020s.
That rapid expansion brought more workers into the economy and helped businesses address labour shortages. However, it also increased demand for housing and public services, particularly in communities experiencing fast population growth.
The federal government began reducing immigration levels in 2024, including measures affecting temporary residents. As a result, fewer newcomers are expected to arrive in the coming years, while many temporary residents are leaving the country.
According to the Bank of Canada, lower immigration could ease some pressure on housing demand and potentially reduce upward pressure on rents and home prices.
However, the economic trade-off is significant. Fewer newcomers also mean fewer workers, slower growth in consumer demand and a smaller increase in the country’s capacity to produce goods and services.
Immigrants have traditionally played an important role in sectors facing labour shortages, including agriculture, restaurants and technology. Many arrive during their working years and begin contributing to the economy relatively soon after settling in Canada.
Newcomers also support economic activity through everyday spending on groceries, transportation, housing and household goods.
The central bank emphasized that immigration contributes to both economic demand and supply. Although a larger population increases consumption, it also expands the workforce and productive capacity, meaning immigration does not necessarily create broad inflationary pressure.
Housing is a notable exception because construction often takes longer to respond to population growth.
Canada’s aging population presents a separate challenge. The country’s median age has risen from approximately 26 in 1971 to more than 40 today, reflecting decades of low birth rates and the retirement of the baby boom generation.
As more Canadians retire, employers may struggle to replace experienced workers, particularly in industries already facing shortages.
An older population is also expected to change spending patterns, increasing demand for healthcare, home support services and housing suited to seniors.
These shifts could place additional pressure on public finances while limiting the economy’s ability to expand.
The Bank of Canada said demographic developments are particularly important for monetary policy because they influence economic growth, inflation and the balance between supply and demand.
The central bank does not set immigration policy, but it must account for population changes when assessing the economic outlook and making interest-rate decisions.
For immigrant communities and prospective newcomers, the analysis highlights a central tension in Canada’s economic strategy: reducing immigration may relieve some immediate pressure on housing, but it could also weaken an important source of future economic growth.
The findings come as policymakers continue to weigh housing affordability, labour market conditions and the country’s long-term demographic needs.
