The Canadian economy is expected to slow significantly in the coming months, putting additional pressure on the Carney government to manage rising deficits and debt costs. The Parliamentary Budget Office (PBO) released a report on Tuesday projecting that economic growth will be just 0.9% this year and 1.5% in 2027, down from earlier forecasts of 1.1% and 1.6%, respectively. The slowdown is largely attributed to the escalating Canada-U.S. trade war that began in June.
The PBO's Economic and Fiscal Outlook also revealed that the federal deficit for this year is projected to hit $59.3 billion, rising to $83 billion by 2030-31. This increase is driven by higher borrowing costs and interest payments on accumulated debt. The report noted that deficits are now expected to be an average of $3 billion higher per year than previously anticipated. Federal debt charges, the fastest-growing expense in the budget, are projected to more than double from $24.5 billion in 2021-22 to $59.3 billion this fiscal year, reaching $83 billion by 2030-31.
Despite higher revenue from inflation and commodity prices, the additional spending of $10.5 billion annually will offset these gains. The federal government's total debt has reached $1.27 trillion, with nearly half accumulated over the last five years. The PBO expects Ottawa to add $333.3 billion in debt over the next five years, a 26.2% increase.
Finance Minister François-Philippe Champagne announced that the federal budget will be presented on November 5. The PBO report underscores the need for the government to reduce its annual deficit while continuing to invest in infrastructure and productivity-enhancing projects. The success of these efforts will be crucial in shaping Canada's economic future, according to the report. Critics, such as Franco Terrazzano of the Canadian Taxpayers Federation, warn that debt interest payments are spiraling out of control due to unchecked government spending.