Budget watchdog cuts 2026 growth forecast to 0.9% as Ottawa sets Nov. 5 budget date

Canada's economy will grow more slowly than expected this year and next, and federal deficits will be larger, the Parliamentary Budget Office said Tuesday in a revised outlook that blames the collapse of Canada-U.S. trade talks at the end of August and the round of tariffs and counter-tariffs that followed.

The report landed the same day Finance Minister François-Philippe Champagne announced that the federal government will table Budget 2026 on November 5, setting up a fiscal plan that will have to contend with weaker growth and higher spending.

The new forecast

The PBO now projects real GDP growth of 0.9% in 2026 and 1.5% in 2027, down from 1.1% and 1.6% in its June outlook. Other key assumptions:

“Canada faces a more challenging economic and fiscal outlook than we projected in June,” said parliamentary budget officer Annette Ryan. “Additional trade measures and ongoing uncertainty are weighing on growth in real output.”

• Deficit of $63.3 billion in 2026-27, peaking at $70.2 billion in 2027-28
• Deficits about $3 billion a year higher on average over 2026-27 to 2030-31 than projected in June
• Inflation averaging 2.8% in 2026, kept elevated by energy prices, before easing to 2.4% in 2027
• Bank of Canada starting to raise its policy rate in early 2027, reaching 2.75% by mid-year
• Debt-to-GDP ratio rising steadily over the five-year horizon

Why the deficit is growing even as revenue rises

Higher gasoline prices linked to the war in the Middle East have lifted near-term government revenue, according to The Canadian Press. But the PBO said new spending measures announced since the spring more than offset that windfall. The watchdog now expects the government to balance its operating budget in 2028-29, a year later than the Liberals promised.

Ryan said the PBO continues to view the debt-to-GDP ratio as an important benchmark of fiscal health, and that the long-term outlook depends on whether recent capital investments actually raise productivity and economic capacity.

What to watch in the November 5 budget

Ottawa's advisory gave few specifics, saying the budget will aim to build “a stronger, more independent and more resilient economy, while making life more affordable.” It said the plan builds on grocery and fuel relief, home-retrofit support, measures to lower new housing costs, major nation-building projects and a new Productivity Mega Deduction intended to spur business investment.

The tension is obvious: more affordability relief and business incentives cost money at a time when the independent watchdog says growth is slowing and the deficit is widening.

The caveats

Forecasts made in the middle of a trade dispute can change quickly. A negotiated deal with Washington would improve the outlook; an escalation would worsen it. The PBO's rate path is an assumption, not a prediction of what the Bank of Canada will do at its October 28 decision.

What it means for Canadian households

Slower growth tends to mean a softer job market, so it is a reasonable moment to check that an emergency fund would cover several months of expenses. The PBO's assumption of rate hikes in 2027 also matters for homeowners with a mortgage renewal coming up in the next two years: budgeting for a rate somewhat higher than today's is a prudent stress test. Any new tax measures will only be known on November 5. This is general information, not personalized advice.

Related

• Building an emergency fund in Canada
• Mortgage renewal guide

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