Bank of Canada: Aging population and low immigration reshaping economy

The Bank of Canada has released new analysis indicating that Canada’s rapidly aging population and declining immigration levels are "reshaping" the country’s economy and consumption patterns. The report highlights how demographic shifts are influencing workforce size, demand for goods and services, and overall economic output.

Population Growth Trends

According to the report, Canada’s population growth surged to three per cent annually in the first half of this decade, a significant increase from the steady 1.2 per cent growth seen over the previous 50 years. This rapid expansion "helped ease labour shortages" but also "added pressure on housing and social services."

However, growth slowed to 0.5 per cent in 2025, which the central bank described as "the slowest rate of growth in more than a century." This slowdown followed the federal government’s decision in 2024 to reduce immigration levels. The report notes that "In the coming years, fewer new immigrants will arrive. Canadians will also continue to get older. This will affect the size of our workforce, what we buy and how much the economy can produce."

Economic and Labor Impacts

The central bank explains that while fewer immigrants may reduce demand for housing, potentially lowering pressure on housing costs, it will also lead to a sharp decline in demand for other goods and services. "Less immigration will mean fewer workers and weaker demand for other goods and services. The economy won’t grow as fast as a result," the report stated.

Immigrants have historically played an "important role" in the economy. The Bank of Canada noted that many newcomers are young and begin contributing to the economy soon after arrival. Temporary workers often fill roles in sectors with labour shortages, such as restaurants and agriculture, while highly skilled newcomers bring expertise to fields like computer engineering. "When immigrants move to Canada, they spend money to build their life here—and that creates demand in the economy," the report said.

Aging Population and Consumption

The report highlights that the median age in Canada has risen from 26 in 1971 to over 40 in 2026. As the baby boomer generation reaches retirement age, consumption patterns are shifting. The central bank predicts an increase in the cost of travel services, such as flights and accommodations, as retirees tend to travel more. Simultaneously, demand for pharmaceuticals, adaptive living products, and supportive home care services is expected to rise.

The aging demographic also poses challenges for the workforce. With fewer young workers to replace retiring employees, some sectors may face massive labour shortages. This could lead to rising wages as businesses compete for talent, which the report suggests "could also push up prices and contribute to inflation."

Additionally, the shift in demand could impact public spending. "Given Canada’s system of universal health care, it could also change how much governments need to spend on hospitals and long-term care—as well as the level of taxation needed to fund these services," the report said.

Why it matters

The Bank of Canada emphasizes that understanding these demographic changes is essential for monetary policy. "Demographic changes influence key drivers of the economy, including production and demand. And these factors affect economic growth and inflation," the central bank stated. The report underscores that the interplay between an aging workforce and reduced immigration will fundamentally alter Canada's economic landscape in the coming years.

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Sources

• globalnews.ca: Bank of Canada says aging population, low immigration ‘reshaping’ economy - National | Globalnews.ca
• hindustantimes.com: Lower immigration reshaping economy: Canada central bank report | World News

This article was drafted with AI assistance and checked against the sources above. Company claims are reported as claims. Cover image is AI-generated.