The Parliamentary Budget Office has revised its economic growth forecast for this year and the following year due to the impact of new U.S. tariffs and retaliatory measures taken by Canada. The latest outlook indicates a projected real GDP growth of 0.9% for the current year and 1.5% for 2027, down from the previous estimates of 1.1% and 1.6%, respectively, issued in June.
Annette Ryan, the parliamentary budget officer, expressed concerns about the challenging economic and fiscal conditions facing Canada compared to earlier projections. She highlighted that additional trade actions and ongoing uncertainties are dampening the country’s real output growth.
The breakdown of trade negotiations between Canada and the U.S. in August, followed by the imposition of new tariffs and counter-tariffs, has further exacerbated the economic situation. The PBO now forecasts a budgetary deficit of $63.3 billion for the 2026-27 fiscal year, peaking 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 previous outlook, primarily due to increased spending measures outweighing revenue growth.
Ryan emphasized the importance of monitoring the debt-to-GDP ratio as a key indicator of fiscal health, noting its expected steady rise over the next five years. She underscored the significance of recent capital investments in shaping Canada’s long-term economic and fiscal prospects, particularly in enhancing productivity and prosperity.
Looking ahead, the PBO anticipates that the Bank of Canada will commence raising its policy rate early in 2027 to maintain stable inflation expectations, reaching 2.75% by mid-year. In terms of inflation, the watchdog predicts that higher energy costs will contribute to an elevated average inflation rate of 2.8% in 2026, moderating to 2.4% in 2027.