Canada’s economy is undergoing significant changes due to demographic shifts, particularly an aging population and declining immigration rates. For over 150 years, Canada’s population grew annually, but in 2025, growth slowed to just 0.5%, the lowest rate in more than a century. This trend is driven by two key factors: a declining birth rate and reduced immigration levels.
The aging population is a major contributor to these changes. With the median age rising from 26 in 1971 to over 40 today, the baby boomer generation is now reaching retirement. This shift affects both consumption and production patterns. Older individuals have different housing needs, often opting for smaller homes, and they spend more on healthcare and leisure activities, which could impact government spending and taxation.
Immigrants have historically played a crucial role in the Canadian economy, filling labour shortages and boosting demand for goods and services. However, recent policy adjustments have led to fewer immigrants arriving, which will reduce workforce numbers and economic growth. While this may ease housing pressure, it could also lead to labour shortages and higher wages in certain sectors, potentially contributing to inflation.
The Bank of Canada acknowledges that while it cannot control demographic changes, understanding their impact is essential for monetary policy decisions. These shifts influence key economic drivers, including production and demand, which in turn affect economic growth and inflation. By maintaining stable inflation, the Bank aims to support the economy as it adapts to these structural changes.