Posthaste: What Canada’s ‘demographic recession’ means for the economy

Canada’s headcount is getting smaller, Statistic Canada has confirmed.

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.

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.

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

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.

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

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.

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.

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

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

“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.

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.

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

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.

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

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.

“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.

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Market peak, take profit or panic? According to the BofA Global Fund Manager Survey, 56 per cent of panellists said AI stocks are in the “Boom” stage where prices gain momentum and fear of missing out brings in more participants.

More than 20 per cent, however, thought they had already reached “Euphoria,” where prices and valuations “skyrocket to extremes.”

Much smaller shares saw AI stocks in the profit-taking stage — where institutional investors start to sell in anticipation of the bubble pop — and the displacement stage where “new trend or innovation attracts investor interest.”

Panic — a loss of confidence that sparks plummeting prices and widespread selling — attracted zero votes.

Strategist Michael Hartnett’s report entitled Frozen bulls said investors remain steadfastly bullish though a “tad less” so than in May as cash levels have climbed to 4.1 per cent from 3.9.

The BofA survey polls 198 panellists with US$540 billion assets under management.

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Thinking of hitching a free ride on the corporate jet this weekend? Be forewarned – unless you’re travelling for work, the Canada Revenue Agency’s view is that you’ve enjoyed a taxable benefit, either as a shareholder (if you own the company) or as an employee. But how should that benefit be valued for tax purposes? Tax expert Jamie Golombek dives into a recent Quebec tax case that dealt with exactly that question. Find out more.

Interested in energy? The subscriber-only FP West: Energy Insider newsletter brings you exclusive reporting and in-depth analysis on one of the country’s most important sectors. Sign up here.

McLister on mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his mortgage rate page for Canada’s lowest national mortgage rates, updated daily.

Financial Post on YouTube

Visit the Financial Post’s YouTube channel for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.

Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff and Bloomberg.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com .

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