Canada economic outlook adjusted amid U.S. tariffs and provincial deficits

Canada’s Parliamentary Budget Office (PBO) has lowered its economic growth forecasts for 2026 and 2027. The watchdog now projects real gross domestic product growth of 0.9 per cent for the current year and 1.5 per cent in 2027, down from previous estimates of 1.1 per cent and 1.6 per cent, respectively. This adjustment follows the breakdown of trade talks between Canada and the U.S. in August, leading to new U.S. tariffs and subsequent Canadian countermeasures.

The PBO also anticipates rising budgetary deficits, projecting a $63.3 billion deficit for the 2026-27 fiscal year, which is expected to peak at $70.2 billion in 2027-28. These figures are approximately $3 billion higher per year than the June outlook.

In Ontario, Finance Minister Peter Bethlenfalvy announced that the province will table its fall economic statement on October 29. While specific details remain undisclosed, the minister indicated a “focused, disciplined and responsible approach” to spending. Ontario is projected to see a deficit of $13.8 billion this year, following a $13-billion deficit in the 2025-26 fiscal year. Bethlenfalvy noted that while the province has weathered American tariffs better than expected, the slowing economy is contributing to necessary deficits.