The Parliamentary Budget Office has revised its economic growth projections downwards for this year and the next due to the impact of new U.S. tariffs and retaliatory measures from Canada. The latest forecast from the federal budget watchdog now anticipates a real gross domestic product growth of 0.9% in the current year and 1.5% in 2027, down from the previously estimated 1.1% and 1.6% in June, respectively.
Annette Ryan, the parliamentary budget officer, highlighted that Canada is facing a more challenging economic and fiscal environment than previously anticipated. The uncertainties stemming from additional trade actions are exerting pressure on the country’s economic output.
Trade negotiations between Canada and the U.S. collapsed at the end of August, leading to the imposition of new tariffs by the U.S. and subsequent counter-tariffs by Canada. As a result, the PBO now foresees a budgetary deficit of $63.3 billion for the 2026-27 fiscal year, peaking at $70.2 billion in 2027-28. These deficits are projected to be $3 billion higher annually on average from 2026-27 to 2030-31 compared to the previous outlook, primarily due to increased spending measures outweighing stronger revenues.
Ryan emphasized the importance of monitoring the debt-to-GDP ratio as a key indicator of fiscal well-being, noting its expected steady rise over the next five years. The long-term economic and fiscal prospects of Canada will hinge significantly on the ability of recent capital investments to enhance productivity, economic capacity, and overall prosperity.
In addition, the PBO anticipates that the Bank of Canada will commence raising its policy rate in early 2027 to maintain stable inflation expectations, with a projected rate of 2.75% by mid-year. In terms of inflation, the watchdog predicts that elevated energy prices will contribute to an average annual inflation rate of 2.8% in 2026, moderating to 2.4% in 2027.