The Parliamentary Budget Office has revised its economic growth projections for this year and the following year downwards due to the impact of new U.S. tariffs and retaliatory measures by Canada. The latest forecast by the federal budget watchdog indicates a lower real gross domestic product (GDP) growth of 0.9% for the current year and 1.5% for 2027, compared to the previously estimated growth rates of 1.1% and 1.6%, respectively, released in June.
Annette Ryan, the parliamentary budget officer, highlighted that the economic and fiscal outlook for Canada is now more challenging than previously anticipated. She mentioned that ongoing uncertainties and additional trade actions are exerting pressure on the country’s economic output.
Trade negotiations between Canada and the U.S. collapsed in August, leading to the implementation of new U.S. tariffs and corresponding counter-tariffs by Canada. The PBO also predicts a budgetary deficit of $63.3 billion for the 2026-27 fiscal year, which is expected to peak 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 June forecast, primarily due to increased spending measures outweighing revenue growth.
Ryan emphasized the significance of the debt-to-GDP ratio as a key indicator of fiscal health, noting a continuous rise over the next five years. The long-term economic and fiscal prospects of Canada are heavily reliant on the effectiveness of recent capital investments in enhancing productivity, economic capacity, and overall prosperity.
Additionally, the PBO anticipates that the Bank of Canada will commence raising its policy rate in early 2027 to maintain stable inflation expectations, aiming to reach 2.75% by mid-year. In terms of inflation, the watchdog foresees that elevated energy prices will contribute to an average inflation rate of 2.8% in 2026, before moderating to 2.4% in 2027.