Posthaste: Canada’s in a ‘demographic recession.’ Should we be worried?

Canada's population is declining for the first time since the 1950s. Photo by Peter J Thompson/National Post

Article content

Article content

Article content

Article content

Data out yesterday showed that the population has now fallen for a third straight quarter — the first declines on record since the 1950s — bringing the national headcount down by 0.5 per cent from a year ago.

Article content

It’s a big change from the population boom following the pandemic and marks the federal government’s efforts to put a brake on the runaway growth that was straining the nation’s resources.

Article content

Article content

But what does this “demographic recession” mean for the economy?

Article content

Article content

According to National Bank of Canada strategist Taylor Schleich and economist Daren King, declining population changes Canada’s “macro math” and could influence the outlook for the Bank of Canada. 

Article content

The biggest change is that economic growth is stronger than it appears, they said.

Article content

While real gross domestic product has now contracted for two straight quarters, raising fears of recession, GDP per person has turned positive, expanding by almost 1 per cent in the first quarter.

Article content

With growth expected to pick up in the second quarter, GDP per capita could rise by almost 3 per cent, the fastest rate since 2022, said the National Bank team.

Article content

Economists with the Royal Bank of Canada explain that swings in population growth have disrupted traditional interpretations of data.

Article content

Between 2023 and 2024, GDP per capita swooned while headline GDP “was overstating economic health.”

Article content

“Now the opposite is true: Headline GDP looks worse than reality, while Canada’s in early-stage recovery from a soft patch that began in early 2023,” said senior economist Claire Fan.

Article content

Article content

Job numbers are also heavily distorted by population growth, say economists. And again when you account for the unprecedented slowing in population growth, the numbers look more positive.

Article content

Article content

“Fewer residents mean fewer potential workers so flat monthly job readings no longer deserve an immediate negative assessment,” said Schleich and King.

Article content

Breakeven job growth — the pace of hiring needed to keep the unemployment rate steady — is now below 10,000 new positions, based on the latest Labour Force Survey, and this explains why sluggish hiring has not pushed the jobless rate higher over the past year.

Article content

“To be sure, flatlining employment is nothing to get excited about, but it does mean that job market slack has stopped accumulating,” they said.

Article content

Lastly — and this is where the Bank of Canada comes in — declining population is disinflationary because it lowers demand. Fewer people buying homes or renting apartments has contributed to the slump in home prices and rents that will eventually show up in the consumer price index.

Article content

“It means more core inflation relief is coming and that the odds of a quick pivot [by the Bank of Canada] to tighter monetary policy are low as trade uncertainty continues to weigh,” said Schleich and King.