Immigration could help Canada top U.S. in economic growth this year

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Economists expect Canada and the U.S. to compete for the top spot for growth among the Group of Seven countries in 2020, yet the latest population data reveal the two nations have starkly different forces driving their expansions.

The Census Bureau reported Dec. 30 that net international migration in the U.S. plummeted for a third straight year in 2019 to a decade low of 595,000. Along with declining birthrates, that helped slow annual population growth to the weakest in a century, according to an analysis by Brookings Institution demographer William Frey.

Last year, Canada added a net 437,000 people from abroad, despite being only a tenth the size of the U.S., helping to drive its fastest population increase in 30 years, even with declines in fertility.

The data show the two countries are relying on different drivers to counter the global trend of aging demographics. While Canada has turned to robust immigration to grow output, the U.S. has done a better job of tapping its domestic workforce and generating productivity gains.

Which development model will prevail in 2020 remains to be seen. Economists surveyed by Bloomberg News are giving the U.S. an edge, with growth projected at 1.8%, versus 1.6% in Canada. Both forecasts are much higher than the other five G-7 countries, which are seen growing by an average 0.7%.

The boost from immigration, however, prompted one bank to predict Canada will leapfrog the U.S.

Flattered by robust population increases of 1.5% year-over-year, Canada’s headline growth could “easily” top the U.S. this year, “especially with some certainty on the USMCA, at long last,” Bank of Montreal Chief Economist Doug Porter said in a note, referring to the new North American trade deal.

Canada’s immigration-driven population boom has been one of the few bright spots for the economy, credited with supporting the labor force and the housing market. Without the population increases, the country would be tracking much slower growth given productivity gains have remained weak for years. Canada’s labor productivity is up 0.6% from a year ago, versus 1.5% in the U.S.

Since 2015, the number of annual newcomers to Canada has more than doubled – the opposite of what’s happening in the U.S., where net international migration has dropped by almost half. Last year, the U.S. grew its population by 0.5% – just one-third of Canada’s pace.

Reasons behind the downward trajectory in the U.S. include fewer foreigners moving into the country, more foreigners leaving, and changes in Puerto Rican migration, according to the U.S. Census Bureau.

More restrictive immigration policies from the Trump administration have also curbed interest from foreign students and workers, benefiting its neighbor to the north.