Canada’s aging population and declining immigration levels are reshaping the country’s economy, affecting the workforce, consumer spending and the economy’s ability to grow, according to a new analysis from the Bank of Canada. In an analysis published on October 8, the central bank said Canada is experiencing a significant demographic shift as population growth slows and the proportion of older residents increases. These changes are expected to influence how many people work, what Canadians spend their money on and how much the economy can produce in the coming years. Canada’s population grew by just 0.5 per cent in 2025, the slowest annual growth rate in more than a century, according to the Bank of Canada. This followed a period of unusually rapid expansion in the early 2020s, when annual population growth reached approximately three per cent. The slowdown reflects two major trends: an aging population and fewer newcomers arriving in the country. Canada’s birth rate has remained below the level needed to replace the population for decades, while the federal government began reducing immigration targets in 2024. Changes affecting temporary residents have also contributed to slower population growth. Immigration has played an important role in supporting Canada’s workforce. Many newcomers arrive during their working years, helping businesses fill vacancies and addressing labour shortages in sectors such as agriculture, hospitality and technology. Immigrants also contribute to economic demand by spending money on housing, groceries, transportation and other goods and services.
With fewer immigrants arriving, Canada could face slower labour-force growth and reduced consumer demand. The Bank said this could limit the economy’s overall growth potential, although slower population growth may also ease some pressure on housing and public services. An aging population is creating additional challenges. As more Canadians reach retirement age, fewer younger workers may be available to replace them. Businesses could face difficulties finding experienced employees, while governments may need to spend more on hospitals, prescription medicines, home care and long-term care services. Demographic changes are also expected to influence consumer spending. Older Canadians may seek smaller, more accessible homes and spend a greater share of their income on health care and leisure. These shifts could affect demand across industries, including housing, tourism, health services and accommodation. The central bank warned that a smaller workforce could constrain production and contribute to labour shortages in certain industries. If businesses struggle to find workers, wages may rise in some sectors, potentially adding to production costs and inflationary pressures. However, the overall effects will depend on how businesses, workers and governments adapt to the changes.
The Bank of Canada also emphasized that immigration policy is determined by the federal government, not the central bank. Its responsibility is to understand how demographic developments affect economic growth and inflation when making monetary policy decisions. The changes come as Canada faces other economic challenges, including trade uncertainty, subdued hiring and questions about productivity. The Bank has stressed that maintaining low, stable and predictable inflation remains important as the economy adjusts to these longer-term structural changes.
The analysis highlights a central challenge for Canada: adapting to slower population growth while maintaining a productive workforce, supporting public services and creating the conditions for sustainable economic growth.