The Parliamentary Budget Office has revised its economic growth projections for this year and next due to recent U.S. tariffs and corresponding Canadian responses. The updated forecast, released on Tuesday, anticipates a 0.9% increase in real gross domestic product for the current year and a 1.5% growth rate in 2027. These figures are lower than the previously estimated 1.1% and 1.6% growth rates, respectively, issued in June.
Annette Ryan, the parliamentary budget officer, stated that Canada is facing a more demanding economic and fiscal outlook than previously anticipated. She highlighted that additional trade measures and persistent uncertainty are exerting downward pressure on the country’s economic output.
Trade discussions between Canada and the U.S. collapsed at the end of August, leading to a new round of tariffs imposed by the U.S. and retaliatory tariffs from Canada. The PBO also predicts 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 June forecast, primarily due to increased spending measures outweighing revenue growth.
Ryan emphasized the significance of the debt-to-GDP ratio as a crucial indicator of fiscal well-being, noting that it will steadily increase over the next five years. She highlighted the importance of recent capital budget investments in enhancing productivity, economic capacity, and overall prosperity for Canada in the long run.
Furthermore, the PBO assumes that the Bank of Canada will commence raising its policy rate in early 2027 to maintain stable inflation expectations, with a target rate of 2.75% by mid-year. Regarding inflation, the watchdog anticipates that elevated energy prices will keep the annual inflation rate at 2.8% in 2026 before moderating to 2.4% in 2027.