The Parliamentary Budget Office has adjusted its economic growth projections for this year and the next due to new U.S. tariffs and Canadian retaliatory measures. The revised forecast now anticipates a 0.9% real gross domestic product growth for the current year and 1.5% for 2027, down from the previous estimates of 1.1% and 1.6% in June.
Annette Ryan, the parliamentary budget officer, stated that Canada is facing a more challenging economic and fiscal outlook than previously anticipated, attributing this to additional trade measures and ongoing uncertainty impacting the country’s output. Talks between Canada and the U.S. collapsed at the end of August, leading to a new round of tariffs and counter-tariffs.
The PBO also projects a budgetary deficit of $63.3 billion for the 2026-27 fiscal year, reaching a peak of $70.2 billion in 2027-28. Compared to the June outlook, the deficits are now $3 billion higher annually over the period 2026‑27 to 2030‑31, with new spending measures outweighing stronger revenues.
Ryan emphasized the importance of the debt-to-GDP ratio as a key indicator of fiscal health, noting it will increase steadily over the next five years. She highlighted the significance of recent capital budget investments in enhancing productivity, economic capacity, and overall prosperity for Canada’s long-term economic and fiscal prospects.
In addition, the PBO expects the Bank of Canada to commence raising its policy rate in early 2027 to maintain inflation expectations, with a target rate of 2.75% by mid-year. The watchdog also foresees higher energy prices contributing to elevated annual inflation rates in 2026, averaging 2.8%, before moderating to 2.4% in 2027.