Canada’s Outlook to 2045

Increases in immigration to help offset effects of population aging.

Updated: December 17, 2021 | Français

Once the pandemic loosens its grip on Canada and the world, economic growth will slow down sharply from the plus 4.0 per cent increase forecast for 2022 as the economy returns to some state of normalcy.

Growth prospects are comparatively weak because the aging of Canada’s population will lead to a slowdown in labour force growth, which will limit consumer and investment spending.

Weaker growth in Canada’s labour force is reflected in the downward trend in the aggregate participation rate. Although the participation rate has recovered somewhat from the slump during the height of the pandemic last year, we expect it will resume a structural downward trend caused by an aging baby-boom cohort.

Overview
As U.S. Population Ages, Economic Growth to Ease
Demographics Rule the Day
Two Conflicting Trends Affecting Potential Output
Could Higher Inflation Persist?
Fiscal Deficits as Far as the Eye Can See
Lingering Pandemic Effects Plus Population Aging to Restrain Aggregate Demand

Key findings

Although fiscal deficits will decline from current record highs, they will persist over the long term, and the federal government will be in a deficit position for most of the next two decades. Financing these deficits is manageable now, but this will change when interest rates start to increase.

The weak growth in Canada’s labour force combined with modest gains in investment spending will limit growth in Canada’s potential output to an average annual gain of just 1.6 per cent over the long term to 2045. Growth in potential output would be even weaker if not for the recent turnaround and positive outlook for total factor productivity.

Sluggish gains in household spending will be linked to weak growth in employment and income. The pandemic-linked surge in spending on durable goods and the collapse of spending on services, particularly travel, won’t last. Canadians will spend more on services like health care and less on durable goods as they age.

Steady gains in immigration will help to partially mitigate trends in the Canadian-born population. By around 2032, growth in Canada’s labour force will start to pick up steam again, and the participation rate will increase once the baby boomers are fully withdrawn from the workforce.