Canada's Parliamentary Budget Office (PBO) cut its 2026 growth forecast to 0.9% and projected rising federal debt relative to GDP as tariffs weigh on the economy ahead of the Nov. 5 budget.
The federal debt ratio is forecast to rise from 40.8% of gross domestic product in fiscal 2026-27 to 42.6% in 2030-31. Over those five years, the PBO expects C$732.9 billion in additional federal borrowing against C$333.3 billion in cumulative deficits. Much of the difference reflects financing for loans to Crown corporations, capital projects, defence procurement and other assets that do not immediately appear as budget expenses.
The near-term deficit estimate has improved. The office projects a C$63.3 billion shortfall in 2026-27, below its C$71.8 billion forecast in June. It expects the annual deficit to peak at C$70.2 billion in 2027-28 and reach C$67.8 billion in 2030-31, C$9.5 billion above its previous estimate for that year.
Higher oil and other commodity prices have lifted projected revenue despite weaker real growth. The PBO estimates that economic and other fiscal developments improve the budget balance by an average C$7.5 billion a year. Measures announced since the Spring Economic Update add average net costs of C$10.5 billion a year, more than offsetting that improvement from 2027-28 onward.
The PBO's 2026 growth estimate was 1.1% in June. It also lowered its 2027 forecast to 1.5% from 1.6%. The outlook accounts for Canadian countermeasures and U.S. tariffs in force on Oct. 1. It keeps the U.S. measures in place for modeling purposes, without assuming how trade talks will end.
A separate PBO assessment considers what would happen if trade measures introduced since early 2025 stayed in place permanently. Under that scenario, Canada's real GDP level could be 1.4% lower after five years than under a pre-tariff baseline, with exports and business investment facing the largest effects. The office estimates that firms would initially bear costs through lower profits, while more of the burden would shift to workers over time and consumer prices would rise. Employment could fall by as many as 185,000 jobs under the scenario.
Parliamentary Budget Officer Annette Ryan said the long-term payoff from recent capital spending depends on gains in productivity and Canada's economic capacity. The government is due to present Budget 2026 on Nov. 5; measures still to be announced are absent from the PBO's current projections.
