Drop in Immigration ‘Timely’ for Canadian Economy Faced With Tariffs Pressure: TD Bank

TD Bank signage is pictured in the financial district in Toronto, on Sept. 8, 2023. The Canadian Press/Andrew Lahodynskyj

The federal government’s lowering of immigration rates has kept the unemployment rate 1 percentage point lower and reduced pressure on the country’s housing market in the face of U.S. tariffs, according to a new report by TD Bank.

“All told, these developments are proving timely as the country simultaneously navigates a policy shock from the United States,” authors of the Oct. 28 report said.

The report said Canada’s unemployment rate would have been at 8.1 percent instead of the current 7.1 percent if Ottawa had not reduced the flow of immigrants into the country, assuming that employers absorbed 30 percent of the new labour supply. The report said even with a more “generous” assumption that employers would absorb 50 percent of the new labour supply, Canada’s unemployment rate would still have risen to over 7.5 percent.

While immigrants had helped in the aftermath of the COVID-19 pandemic to address labour shortages in certain economic sectors, the report said that by the middle of 2024, there was “ample evidence” that labour markets were cooling.

Canada’s population increased by more than 3 million people from 2020 to 2025 due to the arrival of more permanent residents, non-permanent residents, and international students. Ottawa began lowering its target immigration levels in 2024 through measures like putting a two-year intake cap on the number of international student permit applications and announcing plans to reduce the number of temporary residents from 6.5 percent of Canada’s population to 5 percent over the next three years.

The report also said reducing the number of immigrants has led to TD Bank softening its rent market growth forecast of 3–3.5 percent, which is nearly half of the 2024 growth rate of 6.5 percent. Had immigration not been reduced, the average growth of purpose-built rental prices would have been 5.5 percent from 2025 to 2027, which is 2 percentage points higher than TD Bank’s current forecast.

The average renter in Canada would have also been paying an additional $1,100 per year for a one-bedroom apartment by 2027 if population growth had continued at the same rate, according to the report.

In addition, the report said the effect of lowered immigration on consumer spending “proved a surprise,” as aggregate housing spending surpassed most forecasts in the first half of 2025. TD Bank attributed this to lower interest rates, a lowering of household savings from “elevated” levels, and an increase in domestic tourism.

The report said lower immigration rates should have “still pushed against these influences to dent spending momentum,” but this did not happen in practice. It said that although immigrants typically spend more when they first arrive in a country, spending tends to decrease because of remittance payments being sent to family in their home country, increased saving habits, and lower average wages and disposable income compared to workers born in Canada.

“The federal government’s revised immigration policy is beginning to pay dividends in returning balance to a stretched social infrastructure. Although the policy alone does not resolve all of Canada’s structural issues, it was an important reform at the right time in the economy,” the report said.

Immigration Minister Lena Diab said in the House of Commons on Sept. 22 that the Liberal government is intent on “ensuring that our immigration system becomes sustainable, as well as intent on protecting our borders.” She also noted that 100,000 fewer international students arrived in 2025 because the government put a two-year cap on permits at the start of the year.

Throughout 2025, the United States has placed a wide range of tariffs on Canada, including 50 percent tariffs on steel, aluminum, and copper; 25 percent tariffs on vehicles and auto parts; 10 percent tariffs on oil and potash; and 25 percent tariffs on Canadian exports not covered under the United States-Mexico-Canada Agreement, which were increased to 35 percent in August.

Prime Minister Mark Carney has repeatedly said that 85 percent of goods cross the border tariff-free, meaning Canada has the “best” tariff situation compared to other countries.