The latest economic forecast from the Parliamentary Budget Office has been revised downwards for this year and the next due to the impact of new U.S. tariffs and retaliatory measures from Canada.
According to the updated projection released on Tuesday, the Parliamentary Budget Office now anticipates a real gross domestic product growth rate of 0.9 percent for the current year and 1.5 percent for 2027. These figures represent a decrease from the previous estimates of 1.1 percent and 1.6 percent issued in June.
Annette Ryan, the parliamentary budget officer, highlighted the more challenging economic and fiscal outlook facing Canada in a recent news release. She mentioned that additional trade actions and the persisting uncertainty have dampened growth in the country’s real output.
Trade negotiations between Canada and the U.S. stalled at the end of August, leading to the imposition of new U.S. tariffs and subsequent Canadian counter-tariffs.
The Parliamentary Budget Office now predicts a budgetary deficit of $63.3 billion for the fiscal year 2026-27, peaking at $70.2 billion in 2027-28. This represents an increase of $3 billion per year on average compared to the June forecast, as new spending initiatives outweigh stronger revenues.
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 consistently over the next five years. She also highlighted the significance of recent capital budget investments in driving enhanced productivity, economic capacity, and overall prosperity in Canada in the long term.
Looking ahead, the Parliamentary Budget Office assumes that the Bank of Canada will commence raising its policy rate in early 2027 to maintain stable inflation expectations, reaching 2.75 percent by the middle of the 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, before easing to 2.4 percent in 2027.