Curbing the number of temporary workers and international students allowed into Canada would deepen an expected recession and blunt the country’s subsequent recovery, according to Desjardins Securities Inc.

Record numbers of newcomers have pushed Canada’s population growth rate to 3.2 per cent, one of the fastest in the world. The surge has boosted the labor market but also helped drive up housing costs, sparking a backlash in the typically immigrant-friendly country.

Prime Minister Justin Trudeau has acknowledged a need to adjust policy to get a handle on the “massive expansion” in temporary residents.

While an outright ban on non-permanent residents isn’t being considered, Randall Bartlett, Desjardins’ senior director of Canadian economics, examined the impact of changes to immigration. If the influx of temporary residents were to grind to a halt, real gross domestic product would fall considerably below current forecasts, and a recession the firm anticipates in the first half of 2024 would double in length, he wrote in a report released Wednesday.

“Caution is warranted on the part of policymakers to minimize the economic downside of slowing newcomer arrivals too quickly,” Bartlett said. “But it’s not an easy balance to strike, as sustained high non-permanent resident admissions could further strain provincial finances and housing affordability.”

Canada accepted 454,590 new permanent residents over the 12-month period to Oct. 1, while bringing in a record 804,690 non-permanent residents. Temporary admissions should slow naturally with the economy, but changes in government policy may cause them to decline even faster, Bartlett said. 

He used Desjardins’ recent economic and financial outlook as a baseline since it contains population-growth estimates that are roughly in line with the Bank of Canada’s most recent monetary policy report. The Desjardins forecast assumes there will be roughly half as many non-permanent residents in 2024 as there were last year, then half as many again in 2025, before hitting bottom in 2026 and starting to rise again after that.

Given those estimates, the Desjardins outlook predicts real GDP will grow just 0.1 per cent in 2024 and an average of about 1.95 per cent annually from 2025 through 2028.

But if Canada were to shut the door to temporary residents, real GDP would drop by 0.7 per cent in 2024 and grow an average of 1.78 per cent annually over the following four years, Bartlett said.

On the other hand, if Canada were to double the pace of non-permanent resident admissions, compared with the Desjardins forecast, the country would experience a milder economic slowdown than anticipated and potentially avoid a recession altogether. Real GDP would grow 1 per cent in 2024, and top 2.1 per cent on average after that, Bartlett said.

The Bank of Canada’s official forecast doesn’t see a recession on the horizon, though Governor Tiff Macklem said in an interview with BNN Bloomberg that the first part of 2024 is “not going to feel good.”

Boosting temporary-resident admissions would also likely contribute to elevated inflation, complicating the central bank’s job and probably keeping rates higher for longer than they would be otherwise, Bartlett said. Conversely, halting those arrivals would keep inflation more contained.