MNI INTERVIEW2: Immigrants Keep Canada From Recession-Schembri

Canada is well insulated against a recession with immigration adding about a percentage point to the economy's growth rate, and the country would also benefit in the long term from unlocking the potential of the aboriginal population, former central bank deputy Larry Schembri told MNI.

“It’s very hard, given that baseline amount of immigration, for the Canadian economy to actually shrink,” said Schembri, who retired about a year ago from the Bank of Canada. “A technical recession where you have negative growth is fairly unlikely given the baseline amount of immigration.”

Some private bank economists have been calling for an imminent recession for a year now, citing global weakness and the most aggressive central bank tightening in decades. While Canada's economy stalled in the fourth quarter of 2022 it was due to a quirky inventory shift and early estimates show growth of about 2.5% annualized in the first quarter.

Canada's government is seeking to bring in half a million migrants this year and next, extending some of the fastest population growth in decades.

FILLING THE BARBER'S CHAIR

“That’s why the Canadian economy has been surprisingly resilient, because it’s just a force of nature if you have people coming in, they are going to work and buy stuff,” he said. “The economy is going to slow, especially if the U.S. is slowing, but I’m glad that the Bank of Canada hasn’t followed the Fed in terms of raising interest rates, because I never think we went into the same real excess demand that the U.S. did.”

Immigration is also offsetting a drain on parts of the labor force as Baby Boomers retire and workers seek new opportunities after Covid shutdowns. (See: MNI INTERVIEW: Canada Job Data Keep Defying Gloom-Govt Analyst)

“I always point to my barber, a young woman, she was great, but she couldn’t work for the better part of a year and decided to go back and retrain,” Schembri said. “The bathtub emptied and you are trying to build back, and I think the building back is taking place because we have a lot of immigration.”

Rapid shifts in the job market could make it difficult to measure statistics like the labor force and the unemployment rate, Schembri added. Rising labor supply could also help alleviate wage inflation and protect jobs from automation, he said.

UNLOCKING NEW NATIVE WORKERS

“Is that allowing firms to substitute firms away from capital in the sense that now labor is a relatively lower price, so the incentive to automate is less?”

Schembri has continued to do work that he began at the Bank of Canada around reconciliation with indigenous people, noting it's another big opportunity to boost the economy. That group is younger and growing faster than the general population but suffers from high unemployment.

Money from some major legal settlements worth tens of billions of dollars and other revenue are often held in basic savings vehicles rather than being used for developing infrastructure or businesses, he said.

Creating something like Quebec's Caisse fund that invests public savings with a focus on local development could help, Schembri said. “This money is accumulating, but it’s not being invested back into the community,” he said. “We can’t have these huge divergences, especially among people who contributed so much to our country.”