From the Fraser Institute

By Jock Finlayson

Prime Minister Mark Carney talks frequently of making Canada “the strongest economy in the G7.” That promises to be a tall order, which will require—among other things—advancing many more large-scale energy, mining and infrastructure projects in the next one to five years; streamlining Ottawa’s sclerotic project assessment and environmental permitting rules; and responding to recent tax policy changes in the United States, which have left Canada at a significant competitive disadvantage in attracting new business investment.

The challenges confronting Canadian policymakers are daunting. Carney has inherited a sputtering economy crippled by years of weak business investment, zero productivity growth and an increasingly unattractive business climate—and now the new threat of sweeping tariffs, courtesy of our principal trading partner.

During Justin Trudeau’s nine-plus years in power, the two primary motors of economic growth in Canada were an expanding public sector and an immigration-fuelled surge in the population. The first trend saw the federal government and many of the provinces spend and borrow with abandon, producing a near-term economic jolt but also adding to Canada’s mountain of government debt.

The second trend saw Canada post the fastest population growth of any advanced economy from 2016 to 2024, owing to outsized immigration. This also boosted the economy, since every newcomer creates extra demand for goods, services and housing. And many immigrants gain employment, enlarging the country’s workforce. However, Canada’s population growth since 2016 did little to increase prosperity and living standards on a per-person basis.

Now, Canada’s previous engines of economic growth have run out of gas.

While Carney has hinted at even bigger budget deficits than his notably spendthrift predecessor, in reality Canada is about to enter a period of fiscal austerity as governments are compelled—including by bond markets and credit-rating agencies—to rein in spending and tame excessive deficits. It’s hard to imagine that continued increases in the size of government can or will propel a struggling Canadian economy forward in the next few years.

As for population growth, the federal government’s revised immigration plan unveiled last fall aims to sharply reduce inflows of both permanent immigrants and “non-permanent” foreign residents. After a decade of rising immigration, Canada will experience the opposite over the next three years. As a result, the country’s population is poised to stall—and perhaps even slightly decline—after an extended stretch of steady growth. This sudden demographic shift will dampen economic growth, even as the Carney government muses about supercharging Canada’s stagnant economy.

Recent data from Statistics Canada confirms that the effects of Ottawa’s new immigration policy are starting to materialize. The population didn’t grow at all between the fourth quarter of 2024 and the first quarter of this year, reflecting both smaller inflows of new permanent immigrants and a drop in the size of the “non-permanent” resident population, in line with immigration targets announced last year.

With the population no longer increasing and governments under mounting fiscal pressure, the only way to grow the Canadian economy is to kick-start the private sector. That will require a different playbook than the one favoured by the Trudeau government over the last several years. Ottawa should now focus on improving the business environment to encourage companies, entrepreneurs and investors to deploy their capital and talents to build and expand businesses in Canada. Absent that, there’s little chance the prime minister will meet his goal of making Canada the G7’s economic star.

Jock Finlayson

Senior Fellow, Fraser Institute