Canada experienced one of its largest drops in population in the most recent quarter, the result of a crackdown on international students. The drop marks dramatic turnaround for a country that has long pegged its economic growth to immigration.

New estimates released on Wednesday by Statistics Canada showed that Canada’s population fell by 0.2% in the third quarter to stand at 41.6 million, down from 41.65 million on 1 July.

It was the only other quarterly decline on record came in 2020, and was attributed to Covid-19 border restrictions.

The recent decline, however, is driven largely by a drop in the number of international students studying in Canada after Ottawa pledged to tamp down on the number of study permits issued.

Canada’s Liberal party, which oversaw record-levels of immigration under the tenure of former prime minister Justin Trudeau, has shifted course quickly after mounting pushback over what many saw as unsustainable migration.

In the third quarter of 2023, Canada’s quarterly population growth was the highest ever since 1957, with 420,000 people added to the country over that three-month span.

Non-permanent residents make up roughly 6.8% of the total population, down from 7.3% last quarter. The current prime minister Mark Carney has pledged to reduce the number of non-permanent residents in Canada to 5 per cent of the total population by the end of 2027.

Part of that plan involves cutting the number of international student permits in half, from a target of 305,900 new arrivals for 2025 to 155,000 in 2026, and 150,000 in each of 2027 and 2028. At the same time, the federal government plans to gently increase the number of permanent residents admitted into Canada. It anticipates admitting 395,000 new permanent residents in 2025, 380,000 in 2026, and 365,000 in 2027.

The finance minister, François-Philippe Champagne, recently told reporters Canada had “exceeded our capacity to welcome” and provide services to immigrants in recent years.

Robert Kavcic, an economist at Bank of Montreal wrote in a note Wednesday that a “major population adjustment is well under way and it remains one of the biggest economic stories” in Canada.

“In order to hit the non-permanent resident target share, we’ll need to see population growth run barely above zero through 2028, before settling back into a longer-term run rate of just under 1%.”

“We’ve argued all along that the explosion in population growth – to nearly 1.3 million people within a year at one point – was playing a major role in many economic issues Canadian policymakers have been struggling to deal with,” he wrote adding he’s seen a “significant weakening” of the rental market, less pressure on services inflation and growth in real gross domestic product per capita are among the potential impacts he sees as a result of the decline.

The new figures show that every province and territory reported population decreases, apart from Alberta and Nunavut, both of which had increases of 0.2%.