The Parliamentary Budget Office has lowered its economic growth projections for Canada this year and next, citing new U.S. tariffs and Canadian countermeasures. In its revised outlook released on Tuesday, the federal budget watchdog now expects real gross domestic product (GDP) growth of 0.9% for 2026 and 1.5% for 2027. These figures are down from the previous estimates of 1.1% and 1.6%, respectively, issued in June.
Annette Ryan, parliamentary budget officer, stated in a news release that Canada faces a more challenging economic and fiscal outlook than previously projected. She noted that additional trade measures and ongoing uncertainty are weighing on growth in real output. Trade 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, peaking at $70.2 billion in 2027-28. Compared to its June outlook, the deficits are $3 billion higher per year on average over 2026-27 to 2030-31. New spending measures are outweighing stronger revenues, according to the watchdog.
Ryan emphasized that the debt-to-GDP ratio remains an important benchmark for measuring fiscal health, noting it will rise steadily over the next five years. She added that Canada’s long-term economic and fiscal outlook will depend on whether recent capital budget investments can boost productivity, economic capacity, and prosperity.
Meanwhile, the PBO assumes the Bank of Canada will begin raising its policy rate in early 2027 to anchor inflation expectations, reaching 2.75% by midyear. On inflation, the watchdog expects higher energy prices to keep the annual inflation rate elevated in 2026, averaging 2.8%, before easing to 2.4% in 2027.