Stalling immigration may add to Canada's COVID-19 economic woes

TORONTO/OTTAWA (Reuters) - Canada’s immigration minister expects the flow of people coming to live and work in the country to be a driver of economic growth following the coronavirus crisis, but economists say there may be fewer jobs waiting for them.

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Prime Minister Justin Trudeau’s Liberal government has relied on immigration growth to boost the Canadian economy since coming to power in 2015, setting a target of 1% of the country’s population of nearly 38 million.

But Canada’s borders have been closed since March and may be slow to reopen for fear of igniting a second wave of COVID-19, the respiratory illness caused by the novel coronavirus. That could worsen what is already expected to be a steep economic slump in the country this year.

The government has issued 35,000 permits for temporary foreign workers, including 26,000 to help with planting and seeding, to guarantee food security amid the border closure, Canadian Immigration Minister Marco Mendicino told Reuters.

But the federal government’s goal to welcome 341,000 new permanent residents this year will be hard to meet because of the pandemic. In 2019, the target was to bring in 330,000.

Immigration “is an economic driver ... That will continue to be the case after we’re on the other side of the pandemic,” Mendicino said.

New residents have boosted the Canadian economy in recent years by adding to the labor force and spending money on goods and services. Canada’s consumer spending rose by 1.8% in 2019, which was a pace that barely exceeded its population growth.

But economists say it could take some time for the level of economic activity to reach pre-crisis levels.

“Immigration will remain relatively low compared to 2019’s record year, because high unemployment will reduce the incentive for immigrants to come,” said Stephen Brown, senior Canada economist at Capital Economics.

Canada lost a record-breaking 2 million jobs in April while its unemployment rate surged to a near-record 13%.

Canada’s population growth due to people coming to live in the country has slumped following four of the past five recessions, Brown said.

Fewer jobs could crimp consumer spending, but it could also hurt the housing market, which has been growing in recent years to support the demand from new residents.

“Housing, whether it be real estate services, or residential construction, has become a very large part of the Canadian economy, particularly in Ontario and British Columbia,” said Royce Mendes, a senior economist at CIBC Capital Markets.

If you take immigration “out of the equation, that softens the outlook for housing, no doubt,” Mendes said.

Last week, the chief executive officer of the Canada Mortgage and Housing Corporation said the national housing agency is forecasting a decline in average house prices of as much as 18% in the coming 12 months.

“With the reduced pace of immigration, the hit to the oil sector, the Canadian economy might very likely be recovering at a slower speed than some of its other G7 counterparts,” Mendes said.

Reporting by Fergal Smith in Toronto and Steve Scherer in Ottawa; Editing by Paul Simao