Canada's economy faces challenges as stricter immigration policies lead to stagnant population growth

Canada's population growth has nearly stalled in the second quarter of 2025, marking a significant demographic shift. According to Statistics Canada, the country’s population grew by just 0.1% from April to July, adding only 47,098 people, making it the slowest second-quarter growth rate since 1946, excluding pandemic years. The decline is largely attributed to a sharp drop in temporary residents, triggered by stricter immigration policies introduced in 2024.

In the second quarter of 2025, Canada saw its population growth nearly come to a halt, adding only 47,098 people, a stark contrast to previous years. Statistics Canada reported that this is the slowest growth rate since 1946 (excluding pandemic years).

The main reason behind this stagnation is a sharp decline in temporary residents. Recent changes in immigration policies, including tighter rules on work and study permits, have significantly reduced the number of temporary residents coming to Canada, according to Immigration News Canada. As of July 2025, temporary residents, such as international students and temporary workers, have decreased by 58,719 people, marking the largest quarterly decline since 1971.

Key Immigration Changes

In 2024, the Canadian government implemented stricter immigration policies to address labour market concerns and public backlash over rapid population growth. Among the key changes:

• Limiting Temporary Foreign Workers: Restrictions were placed on the number of low-wage temporary foreign workers that employers could hire.

• Capping Study Permits: The government reduced the number of study permits issued to international students, a move that directly affected the influx of temporary residents.

• Stricter Asylum Policies: While some asylum seekers helped offset the decline in temporary residents, the overall number still fell.

These measures came in response to pressures caused by rapid population growth, which had strained housing, infrastructure, and public services. In the years prior, Canada had experienced annual population increases of around 1 million people, largely due to the influx of temporary residents aimed at addressing labour shortages. However, the government shifted its focus to restrict the flow, a move aimed at alleviating these pressures.

Economic Concerns

The drop in population growth coincides with a rise in Canada’s unemployment rate, which hit 7.1% in August 2025, the highest since 2016 (excluding pandemic years). This has caused the government to be cautious about easing immigration restrictions, despite the slowing population growth.

Economist Armine Yalnizyan of the Atkinson Fellow on the Future of Workers warned that sectors heavily reliant on temporary workers, such as construction, childcare, and long-term care, could face challenges in the long term, according to Immigration News Canada. While the immediate economic impact may be limited, labour shortages in these sectors could potentially stunt economic growth.

Long-Term Outlook

Parisa Mahboubi, a labour economist at the C.D. Howe Institute, pointed out that relying solely on immigration to offset Canada’s ageing population is unsustainable. She stressed the importance of attracting skilled immigrants to maximise economic benefits.

While the government grapples with balancing population growth, economic needs, and resource management, the long-term implications of Canada’s stagnating population growth will likely become more pronounced. From labour shortages to economic constraints, these demographic shifts could significantly impact Canada’s growth trajectory in the coming years.