PBO trims economic forecast for 2026 and 2027 amid new U.S. tariffs

“Additional trade measures and ongoing uncertainty are weighing on growth in real output – what we produce as a country.”

Trade talks between Canada and the U.S. broke down at the end of August followed by a new round of U.S. tariffs and Canadian counter-tariffs.

The PBO said it also now projects a budgetary deficit of $63.3 billion for the 2026-27 fiscal year, which will peak at $70.2 billion in 2027-28.

Relative to its June outlook, the deficits are $3 billion higher per year on average over 2026‑27 to 2030‑31, as new spending measures more than offset stronger revenues, the watchdog said.

“The PBO continues to maintain that debt-to-GDP ratio is an important benchmark for measuring fiscal health,” Ryan said. “It will rise steadily over the five-year horizon.”

She added: “Over the longer term, Canada’s economic and fiscal outlook will depend heavily on whether recent capital budget investments can translate into stronger productivity, economic capacity and prosperity.”

Meanwhile, the PBO assumes the Bank of Canada will start raising its policy rate in early 2027 “to keep inflation expectations anchored,” reaching 2.75 per cent by midyear.

On inflation, the watchdog expects higher energy prices will keep the annual inflation rate elevated in 2026, averaging 2.8 per cent, before easing to 2.4 per cent in 2027.

This report by The Canadian Press was first published Oct. 20, 2026.

The Canadian Press

by The Canadian Press

PBO trims economic forecast for 2026 and 2027 amid new U.S. tariffs

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