Canada’s economic outlook weakens as federal deficits continue to climb

OTTAWA— Canada’s Parliamentary Budget Office has downgraded its economic growth forecasts and warned of mounting federal deficits as the country’s ongoing trade confrontation with the United States weighs heavily on economic prospects.

In its latest economic and fiscal outlook, released October 20, the federal budget watchdog projected real gross domestic product growth of just 0.9 per cent in 2026 and 1.5 per cent in 2027, down from earlier estimates of 1.1 and 1.6 per cent, respectively.

The PBO expects the federal deficit to reach $63.3 billion in the 2026–27 fiscal year before climbing to $70.2 billion in 2027–28.

The weaker outlook follows the breakdown of Canada–U.S. trade negotiations in August and the introduction of additional American tariffs and Canadian countermeasures.

Although higher commodity prices are expected to increase some federal revenues, new government spending commitments are projected to offset much of those gains.

The watchdog also warned that Ottawa is unlikely to meet its stated objective of maintaining a consistently declining deficit-to-GDP ratio under current spending plans.

The findings present a significant challenge for Prime Minister Mark Carney’s government, which has made economic stability, investment and trade diversification central priorities.

With businesses facing uncertainty over access to the American market, the revised projections underscore the growing economic consequences of deteriorating relations with Canada’s largest trading partner.