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By Promit Mukherjee and Ismail Shakil
OTTAWA (Reuters) -Canada's immigration reduction targets announced this week will likely have an impact on the central bank's growth forecast, Governor Tiff Macklem said on Friday, but cautioned the bank was yet to analyze the numbers.
Macklem said there was a lot of uncertainty on how quickly the immigration curbs would be implemented and that would impact how growth estimates change.
This week, Prime Minister Justin Trudeau lowered the number of immigrants to be allowed into the country from next year.
Trudeau's poll numbers have sunk as a sharp increase of immigrants since the coronavirus pandemic has contributed to a spike in population and a rise in housing demand, prices and rents.
"If population growth comes down faster than we have assumed, headline GDP growth will be lower," Macklem said in response to a question on how the immigration curbs would impact the bank's forecasts.
If household spending recovers more quickly due to continued cut in interest rates, economic growth could also be higher, he said, while addressing reporters virtually from Washington.
The BoC, in its monetary policy report released this week, projects that GDP next year would be 2.1% and 2.3% in 2026.
The new forecasts were announced after the bank reduced its key overnight rate by 50 basis points.
Economists doubt the bank's growth estimates could be achieved as most of the growth was driven by an increased demand from arriving immigrants.
The measures announced by the Trudeau government are expected to result in a population decline of 0.2% in both 2025 and 2026 before returning to growth in 2027, the government said.
The bank will be updating its forecasts in its next monetary policy report in January.
The impact on consumer prices, or its inflation forecasts, will not be major even though most predictions depend on how fast the government plans are implemented, the governor said.
"If you go over the inflation forecast, there could be some timing effects, but they are pretty second order," he said, adding lower population would impact both demand as well as supply.
(Reporting by Promit Mukherjee and Ismail Shakil; Editing by David Gregorio)
