Bank of Canada says aging population, low immigration ‘reshaping’ economy

Canada’s rapidly aging population and declining immigration levels are “reshaping” the country’s economy and consumption patterns, new analysis from the Bank of Canada shows.

The rapid population growth in the first half of this decade, when Canada’s population grew annually by three per cent after 50 years of steady 1.2 per cent growth, added new workers to the economy and “helped ease labour shortages” in the country, the report said.

However, it also added pressure on housing and social services.

In 2025, Canada’s population slowed to 0.5 per cent – the slowest rate of growth in more than a century after 150 years of steady growth. This immediately followed the federal government’s decision in 2024 to reduce immigration levels.

“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,” the report said.

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The housing sector typically responds much more slowly to higher population levels than businesses that can quickly ramp up production by hiring more workers, it said.

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Fewer immigrants will mean reduced demand for housing, which could lower pressure on housing costs, however, demand for other goods and services is expected to also decline sharply, leading to a slowdown of Canada’s economic growth.

“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 said.

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Canada is also aging, the report said, noting that the median age in Canada has gone from 26 in 1971 to over 40 in 2026.

An older population will mean the goods and services Canada produces and consumes will also change, it said.

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With the baby boomer generation largely having reached retirement age, Canada will see an increase in the cost of travel services such as flights and accommodations since retirees tend to travel more.

At the same time, the demand for pharmaceuticals, adaptive living products and supportive home care services will also rise.

“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,” the report said.

An older, rapidly retiring population also means there will be fewer young workers to replace them in the workforce. This means that some sectors, which could see massive labour shortages, will also see wages rise and businesses try to attract the best workers.

This could also push up prices and contribute to inflation, the report added.