Over the past five decades, there has been zero correlation between year-over-year population growth and real GDP growth in Canada—a finding that challenges widespread assumptions about immigration's economic impact, according to a new analysis from BMO Economics. The report examines how Canada's abrupt reversal in population trends—from century highs in 2023/24 to the first annual decline on record in 2025—affects the economy. While many policymakers and commentators have pointed to slower population growth as a drag on economic performance, the BMO study concludes the relationship is far more complex than commonly believed.
The data reveals that even during Canada's strongest labour force expansion in decades during 2023/24, the country recorded "perfectly pedestrian" real GDP growth of just 2%. Population growth is also not a leading indicator of near-term economic performance, the report finds. Real consumer spending climbed 2.0% year-over-year in the first quarter of 2025—barely below the 2023/24 pace—even as immigration flows reversed sharply. Meanwhile, per capita GDP actually turned slightly positive in the past year after dropping heavily in 2023, when supercharged population growth masked underlying economic weakness.
Looking at productivity, the history of the past 40 years suggests the relationship between labour force growth and productivity gains is negative—meaning faster labour force expansion has been consistent with weaker productivity improvements. The report notes that Canada's strongest sustained run of productivity growth in the past 50 years occurred during the internet boom in the late 1990s and early 2000s, which coincided with the slowest five-year stretch of population growth in the post-war era. The authors write there's "no evidence that slower labour force growth will hamper productivity."
Why would a rapidly expanding workforce undercut productivity? The report lays out two mechanisms. First, a ready supply of talented and relatively inexpensive workers can discourage firms from automating and investing in machinery and equipment—it's simply easier to expand by adding workers than machines. Second, a very rapid rise in the labour force can prompt new entrants to accept almost any available job with lower pay and thus lower productivity, precisely what happened in 2023/24. Put another way, the capital-to-labour ratio tilts heavily toward labour and undercuts productivity, as investment just can't—or won't—keep up with a sudden rush in the labour force. The report emphasizes that while much slower labour force growth will ultimately dampen potential output growth, the relationship is likely not one-for-one and only materializes over the longer haul, not the short term.
The bottom line: BMO Economics doesn't characterize the deep slowdown in population growth as necessarily "good" or "bad," but argues it was likely a necessary step to correct the excesses of earlier years that led to a weak job market for young workers and very weak housing affordability. The report concludes that a more stable, predictable, and sustainable immigration policy would be a "good" thing for the economy—offering a path forward that avoids the whiplash of recent years.