Parliamentary Budget Officer Annette Ryan prepares to appear at the Standing Committee on Government Operations and Estimates on Parliament Hill in Ottawa, on June 16, 2026. The Canadian Press/Justin Tang
The Parliamentary Budget Office (PBO) lowered its economic growth forecast for Canada amid tariff tensions with the United States.
The PBO’s latest economic outlook
growth of just 0.9 percent in 2026, down from its forecast of 1.1 percent in June, and 1.5 percent in 2027, down from 1.6 percent.
“We expect growth to remain subdued through the first half of 2027, before gradually recovering as firms adapt to the new trade environment and exports rebound,” the office of Parliamentary Budget Officer Annette Ryan said in the Oct. 20 Economic and Fiscal Outlook.
The updated growth figures are also
the PBO’s September 2025 forecast, when it projected growth of 1.3 percent in 2026 and 1.8 percent in 2027.
The latest report takes into account the tariffs between Canada and the United States, the PBO said. In addition to tariffs on Canadian automobiles and auto parts, steel, aluminum, and copper, Washington imposed 50 percent tariffs on $27.6 billion worth of Canadian goods on Aug. 22. Ottawa responded with counter-tariffs on $27.6 billion worth of U.S. imports on Sept. 8.
The budget watchdog said that if the tariffs become permanent, they could reduce Canada’s GDP by around 1.4 percent over the medium term than it would otherwise be, compared to the estimated impact of 0.9 percent from its June 2026 outlook. The PBO nevertheless forecasts growth of 1.7 percent in 2028, assuming tariffs remain in place but business uncertainty eases.
The PBO projects that Ottawa will meet its target of balancing day-to-day operating spending with revenues by 2028–29, with a $6.2 billion operating surplus that year after a $300 million operating deficit in 2027–28.
The PBO nevertheless forecasts overall federal deficits of $63.3 billion in 2026–27 and $70.2 billion in 2027–28.
In November 2025, then-interim parliamentary budget officer Jason Jacques said the Liberal government had an “overly expansive” definition of capital investments, adding that it overstated capital spending by $94 billion over the next five years. He said the government would be unable to fulfill its promise of balancing operational spending by 2028–29 if it used a stricter definition similar to that used in the United Kingdom.
The latest PBO report said the government would likely not meet its second fiscal anchor of a declining deficit-to-GDP ratio. It expects the ratio to rise over the next two years. The report said new measures introduced in the next budget could “change the timing and profile of either anchor.”
“On balance, the two fiscal anchors have imposed limited fiscal discipline on government spending and borrowing,” the report said.
The PBO projects the debt-to-GDP ratio will continue rising, from 40.8 percent in 2026–27 to 42.6 percent in 2030–31. Per capita federal debt will rise from $33,436 in 2026–27 to $39,191 in 2030–31, it forecast.
The PBO expects federal borrowing to “grow significantly faster than deficits,” projecting cumulative deficits of $333.3 billion over the next five years, while federal borrowing will rise by $732.9 billion.
