The latest economic projections from the Parliamentary Budget Office have been revised downward for this year and the next due to the impact of new U.S. tariffs and retaliatory measures by Canada. The PBO now forecasts a real GDP growth rate of 0.9% for this year and 1.5% for 2027, down from the previous estimates of 1.1% and 1.6% issued in June.
Annette Ryan, the parliamentary budget officer, highlighted the challenging economic and fiscal outlook facing Canada, attributing it to additional trade actions and persistent uncertainty affecting the country’s production output. Trade negotiations between Canada and the U.S. stalled in August, leading to the imposition of new tariffs by both sides.
The PBO also anticipates a budgetary deficit of $63.3 billion for the 2026-27 fiscal year, peaking at $70.2 billion in 2027-28. This represents an increase of $3 billion annually compared to the June projections, primarily driven by higher government spending overshadowing revenue growth.
Ryan emphasized the importance of monitoring the debt-to-GDP ratio as a key indicator of fiscal well-being, noting a steady rise over the next five years. The long-term economic and fiscal outlook of Canada will heavily rely on the effectiveness of recent capital investments in enhancing productivity, economic capacity, and overall prosperity.
Looking ahead, the PBO expects the Bank of Canada to initiate policy rate hikes in early 2027 to manage inflation expectations, aiming for a rate of 2.75% by mid-year. In terms of inflation, the watchdog anticipates elevated energy prices to sustain an annual inflation rate of 2.8% in 2026, gradually easing to 2.4% in 2027.