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Canada’s economy faces significant structural changes as the country’s population ages rapidly and immigration levels fall sharply, according to new analysis from the Bank of Canada. The report warns that these two trends together will reshape the workforce, alter consumer demand and slow overall economic growth in the years ahead.
A Sharp Reversal in Population Growth
For most of the past 50 years, Canada’s population grew at a steady annual rate of about 1.2 percent. That changed dramatically in the first half of this decade, when growth surged to three percent per year. The Bank of Canada notes that this rapid expansion brought new workers into the economy and helped ease widespread labour shortages.
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However, that growth also placed heavy strain on housing and public services. Then, following the federal government’s decision in 2024 to reduce immigration levels, population growth slowed to just 0.5 percent in 2025. That is the slowest rate of growth Canada has recorded in more than a century.
The Bank of Canada’s report is direct about the consequences. “In the coming years, fewer new immigrants will arrive. Canadians will also continue to get older. This will affect the size of our workforce, what we buy and how much the economy can produce,” it states.
Housing and Consumer Demand Both Expected to Soften
One immediate effect of lower immigration is reduced demand for housing. The report notes that the housing sector typically responds much more slowly to population changes than other industries. Businesses can quickly hire more workers to boost output, but housing supply takes far longer to adjust.
As a result, fewer arriving immigrants could ease pressure on housing costs. At the same time, however, demand for a wide range of other goods and services is also expected to decline. “Less immigration will mean fewer workers and weaker demand for other goods and services. The economy won’t grow as fast as a result,” the report states.
An Aging Population Changes What Canadians Buy
Canada is also getting older. The median age has risen from 26 in 1971 to over 40 in 2026. The Bank of Canada says this shift will change both what Canadians produce and what they consume.
With the baby boomer generation now largely at retirement age, demand for travel services such as flights and accommodation is expected to increase. Retirees tend to travel more than working-age Canadians. Meanwhile, demand for pharmaceuticals, adaptive living products and home care services will also rise significantly.
The report also flags the broader fiscal impact. “Given Canada’s system of universal health care, it could also change how much governments need to spend on hospitals and long-term care — as well as the level of taxation needed to fund these services,” it notes.
Labour Shortages Could Push Up Wages and Prices
An older, rapidly retiring population means fewer young workers are available to fill vacant roles. The Bank of Canada warns that certain sectors could face severe labour shortages as a result. In response, wages in those sectors are likely to rise as businesses compete to attract and retain workers.
Furthermore, tighter labour markets could push up prices more broadly. The report cautions that this dynamic may contribute to inflationary pressure across the Canadian economy. Together, the effects of aging demographics and lower immigration present a complex challenge for policymakers, businesses and households alike.
