The Parliamentary Budget Office has revised its economic growth forecast downwards for both this year and next due to the impact of new U.S. tariffs and retaliatory measures from Canada. The latest outlook from the federal budget watchdog now predicts a real gross domestic product growth of 0.9 percent for the current year and 1.5 percent for 2027, down from the previous estimates of 1.1 percent and 1.6 percent, respectively, that were released in June.
Annette Ryan, the parliamentary budget officer, highlighted the increased economic and fiscal challenges facing Canada compared to the previous projections provided in June. She stated that additional trade actions and continued uncertainty are exerting pressure on the country’s economic output.
Trade negotiations between Canada and the U.S. collapsed at the end of August, leading to a new wave of tariffs imposed by the U.S. and retaliatory tariffs from Canada. The Parliamentary Budget Office also anticipates a budget deficit of $63.3 billion for the 2026-27 fiscal year, which is expected to peak at $70.2 billion in 2027-28.
Compared to the June forecast, the deficits are projected to be $3 billion higher annually on average from 2026-27 to 2030-31. This increase is attributed to new spending initiatives outweighing the boost in revenues, according to the watchdog.
Ryan emphasized the importance of monitoring the debt-to-GDP ratio as a key indicator of fiscal well-being, noting that it is expected to rise steadily over the five-year period. Looking ahead, she emphasized that Canada’s economic future hinges significantly on the ability of recent capital investments to enhance productivity, economic capacity, and overall prosperity.
The Parliamentary Budget Office’s assumptions include the Bank of Canada initiating policy rate hikes in early 2027 to maintain inflation expectations, with the rate reaching 2.75 percent by mid-year. In terms of inflation, the watchdog anticipates that elevated energy prices will contribute to an average annual inflation rate of 2.8 percent in 2026, followed by a decrease to 2.4 percent in 2027.
