Budget Watchdog Sees Weaker Growth and Rising Debt Ahead of Nov. 5 Federal Budget

The Parliamentary Budget Officer has lowered its economic forecast and projects that federal debt will keep rising as a share of the economy, ahead of the Carney government’s Nov. 5 budget.

“Canada faces a more challenging economic and fiscal outlook than we projected in June,” Parliamentary Budget Officer Annette Ryan said in the office’s Economic and Fiscal Outlook, released Tuesday.

The PBO now projects real economic growth of 0.9 per cent in 2026 and 1.5 per cent in 2027, down from its June forecast of 1.1 per cent and 1.6 per cent.

Deficits and debt
The PBO projects a deficit of $63.3 billion in 2026 to 2027, rising to $70.2 billion the following year, The Canadian Press reported. By 2030 to 2031 the deficit is $67.8 billion, $9.5 billion higher than in June, according to the PBO. Cumulative deficits over five years total $333.3 billion.

Federal debt as a share of the economy rises each year, from 40.8 per cent in 2026 to 2027 to 42.6 per cent in 2030 to 2031, the PBO said. It estimates federal borrowing over five years will be $732.9 billion higher than the cumulative deficits alone, because of loans, capital investment, defence procurement and other financial assets.

Fiscal anchors
The PBO said the government meets its operating budget anchor in 2028 to 2029, with a $6.2 billion surplus, after a small deficit the year before. It does not meet the anchor of a declining deficit to GDP ratio, which rises in 2027 to 2028 and 2029 to 2030.

“A balanced operating budget anchor should not be interpreted as a balanced fiscal position,” Ryan said.

Tariffs and the outlook
The PBO estimates the trade weighted average effective U.S. tariff rate on Canadian imports at between 5.3 and 7.7 per cent after trade actions since June, and Canada’s rate on U.S. imports at between 1.6 and 3.0 per cent. If permanent, trade measures since early 2025 could lower real economic output by about 1.4 per cent over the medium term compared with a scenario without tariffs.

The Canadian Press reported that talks between Canada and the United States broke down at the end of August, followed by new U.S. tariffs and Canadian counter tariffs. The PBO assumes higher energy prices will keep inflation at 2.8 per cent on average in 2026 before easing to 2.4 per cent in 2027, and that the Bank of Canada begins raising its policy rate in early 2027 to reach 2.75 per cent by midyear, the news agency reported.

The projections exclude measures to be announced in the budget.

The budget date
Finance Minister François Philippe Champagne told MPs Wednesday that the government will table its budget on Nov. 5, The Hub reported. He said it will “outline the next steps in our plan to build a stronger, more resilient and more affordable Canada.” Conservative Leader Pierre Poilievre criticized the government’s spending in Calgary this week and said the focus should be on whether Canadians are saving money and whether their jobs are secure, The Hub reported.