The Parliamentary Budget Office has revised its economic growth projections for this year and the next due to the impact of new U.S. tariffs and Canada’s countermeasures. According to the updated forecast released on Tuesday, the federal budget watchdog now anticipates a real gross domestic product (GDP) growth of 0.9% for the current year and 1.5% for 2027. These figures represent a decrease from the previously estimated growth rates of 1.1% and 1.6%, respectively, published in June.
Annette Ryan, the parliamentary budget officer, expressed concerns about the challenging economic and fiscal outlook facing Canada compared to the earlier projections made in June. She highlighted that additional trade measures and ongoing uncertainties are exerting downward pressure on the country’s economic growth.
The breakdown of trade negotiations between Canada and the U.S. at the end of August, followed by the imposition of new U.S. tariffs and Canadian retaliatory tariffs, have further exacerbated the economic situation. 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. These deficits are now expected to be $3 billion higher annually on average over the period from 2026-27 to 2030-31, primarily due to new spending measures outweighing stronger revenues.
Emphasizing the importance of the debt-to-GDP ratio as a key indicator of fiscal health, Ryan stressed that it will increase steadily over the next five years. She underscored that the long-term economic and fiscal prospects of Canada hinge significantly on the ability of recent capital budget investments to enhance productivity, economic capacity, and overall prosperity.
Looking ahead, the PBO anticipates that the Bank of Canada will commence increasing its policy rate in early 2027 to maintain stable inflation expectations, with the rate reaching 2.75% by the middle of the year. Regarding inflation, the watchdog predicts that elevated energy prices will drive the annual inflation rate up to 2.8% in 2026 before moderating to 2.4% in 2027.
