Scotia raises forecast on population surge

By James Langton | July 21, 2023 | Last updated on July 21, 2023
2 min read
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Scotiabank’s economists are raising their economic forecasts, citing the strength of Canada’s underlying demographic trends.

Canada added approximately 1 million residents last year, largely driven by record immigration, and is on track to exceed that total this year, a report from Scotiabank said. Population growth in the second quarter was almost triple the pre-pandemic average, and the pace accelerated into the start of the third quarter, it said.

“With such powerful tailwinds, it seems highly unlikely that the economy will contract in the current quarter,” the report said.

Indeed, the bank’s economists are now forecasting 0.7% GDP growth for the third quarter, as demographic forces continue to bolster consumption.

“Those increases have boosted demand as new residents purchase goods and services, but also likely dampened upward pressure on wages as they join the workforce by boosting the supply of labour,” the report said.

These forces will also likely prevent the economy from falling into a technical recession (defined as two consecutive quarters of negative growth), it suggested.

However, Scotia expects the GDP growth rate to slow to 0.2% in the fourth quarter before slipping to a modest decline in the first quarter of 2024.

The report also noted that the picture isn’t as rosy in terms of real GDP per capita.

“Population growth is exceeding that of the economy and in so doing is depressing output per capita,” it said.

“It is no surprise then that Canadians indicate some discomfort with the state of the economy even though the outlook is better than earlier forecast,” it added. “There may not be a technical recession in the country when looking at GDP, but we should see a sizeable decline in real GDP per capita this year.”

Against that backdrop, Scotia isn’t revising its interest rate or inflation forecasts. It continues to expect that inflation will average 3.7% this year, falling to 2.4% in 2024 before returning to the Bank of Canada’s 2% target in 2025.

As a result, it hasn’t altered its interest rate outlook: “We believe the Bank of Canada’s tightening cycle is at an end and that it will begin a series of gradual cuts” beginning in the second quarter of 2024, it said, though the forecast depends on GDP and inflation slowing as expected.

“If the economy remains more robust or if core measures of inflation remain stubbornly above 3%, Governor Macklem would need to raise rates further. As a consequence, the risks to the policy rate in the short run are clearly to the upside,” it said.

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James Langton

James is a senior reporter for and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.