The latest economic growth projections from the Parliamentary Budget Office have been revised downward for this year and the next due to the impact of new U.S. tariffs and corresponding Canadian measures. The federal budget watchdog now anticipates a real gross domestic product growth rate of 0.9% for the current year and 1.5% for 2027, down from the previous estimates of 1.1% and 1.6% issued in June.
Annette Ryan, the parliamentary budget officer, highlighted the challenges facing Canada’s economic and fiscal outlook in a recent statement, emphasizing that additional trade actions and ongoing uncertainty are dampening the country’s economic growth. Trade negotiations between Canada and the U.S. faltered in August, leading to the imposition of new tariffs by both sides.
The revised forecast also includes projections of a budgetary deficit of $63.3 billion for the 2026-27 fiscal year, peaking at $70.2 billion in 2027-28. Compared to the previous outlook, the deficits are expected to be $3 billion higher annually on average from 2026-27 to 2030-31, with new spending measures outweighing stronger revenues.
Emphasizing the importance of the debt-to-GDP ratio as a key indicator of fiscal health, Ryan stated that it is projected to increase steadily over the next five years. The economic and fiscal future of Canada will largely hinge on whether recent capital investments can enhance productivity, economic capacity, and overall prosperity in the long term.
Looking ahead, the PBO anticipates the Bank of Canada will commence raising its policy rate in early 2027 to maintain stable inflation expectations, reaching 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, easing to 2.4% in 2027.
