Canada’s Growth Outlook Is Resetting – Policy Expectations Should Too

May 6, 2026 – As Canada’s economic data begin to reflect slower population growth, it may appear weaker than in the past, even when the economy is operating close to capacity. With immigration targets now reduced, slower employment and GDP growth will increasingly reflect demographic constraints rather than economic underperformance, according to a new report from the C.D. Howe Institute. This shift risks being misread by policymakers and markets, potentially leading to policy responses that are miscalibrated to Canada’s economic reality.

In “Resetting Expectations: Canada’s Economy in a Lower-Immigration Era,” Don Drummond and Parisa Mahboubi examine how lower immigration is reshaping labour force growth and, in turn, the economy’s capacity to expand. The report develops supply-side benchmarks for employment and real GDP growth to help interpret economic data in this new environment.

The report finds that, under a baseline scenario, employment is projected to decline in 2026 and 2027, even in a normally functioning economy. Monthly job losses on the order of a few thousand would not signal weakness but rather reflect slower population and labour force growth driven by reduced immigration.

Real GDP growth is also expected to be subdued. The report projects growth of roughly 0.4 to 0.5 percent in the near term and about 1.2 percent over the long run – materially below the projections in the federal Spring Economic Update and the Bank of Canada’s Monetary Policy Report.

“The risk is misreading what’s happening,” says Drummond. “Slower growth will look like weakness, but it largely reflects a smaller workforce. Treating it as a demand problem risks triggering policy responses that could make things worse.”

A central contribution of Drummond and Mahboubi’s report is its distinction between cyclical weakness and structural change. By constructing benchmarks based on demographic trends, the authors show how much of the expected slowdown is driven by reduced labour supply rather than weakening economic fundamentals.

Compared to recent federal and Bank of Canada forecasts, the report suggests a materially lower growth path, with real GDP about 11.5 percent lower by 2060. This gap has important implications for fiscal sustainability, as slower growth translates into weaker revenues and higher debt pressures over time.

“Nothing here says the economy is broken,” says Mahboubi. “It’s adjusting to a different demographic reality, and policymakers need to understand that before drawing conclusions from the data.”

It explains that the policy challenge is diagnostic: misreading demographic-driven softness as economic weakness could prompt unnecessary stimulus or premature monetary easing, risking inflation without improving underlying growth.

To support stronger long-term performance, the authors point to the importance of policies that enhance productivity, encourage business investment, and strengthen labour supply through higher participation and improved integration of workers.

“If expectations don’t adjust, there’s a risk of chasing the wrong problem,” says Drummond. “Getting the diagnosis right is the first step to getting the policy right.”

Read the Full Report

For more information, contact: Don Drummond, Fellow-in-Residence, C.D. Howe Institute, and Stauffer-Dunning Fellow at Queen’s University; Parisa Mahboubi, Associate Director of Research, C.D. Howe Institute; Percy Sherwood, Associate Editor and Communications Officer, C.D. Howe Institute, 416-407-4798, psherwood@cdhowe.org.

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada’s most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.

Want more insights like this? Subscribe to our newsletter for the latest research and expert commentary.