Parliamentary Budget Officer Releases Economic and Fiscal Outlook – October 2026
Federal spending, borrowing and debt continue to rise amid weaker economic growth
The Parliamentary Budget Office (PBO) today released the Economic and Fiscal Outlook – October 2026, which projects weaker economic growth and larger borrowing than forecast in June. The report also forecasts that the government will meet only one of its two fiscal anchors.
The report reflects economic performance, new tax and spending measures announced since June, and the impact of new tariffs and counter-tariffs as of October 1st. Current fiscal projections do not reflect new measures yet to be announced in the upcoming federal budget.
Key Findings / Quick Facts
- Canada’s real GDP growth is now projected to be 0.9 per cent in 2026 and 1.5 per cent in 2027, down from 1.1 per cent and 1.6 per cent, respectively, in the June outlook.
- The weakened economic growth forecast is primarily attributed to revised tariff and trade conditions vis-à-vis the United States.
- Nominal GDP growth is up, at 5.6 and 3.4 per cent in 2026 and 2027, reflecting inflation and price increases for oil and commodities which boost federal revenue projections for the next two fiscal years.
- If permanent, trade measures introduced since early 2025 could lower real GDP by about 1.4 per cent over the medium term, compared with a no-tariff scenario.
- Over the five-year forecast period, available fiscal room improved by $37.4 billion since June; new spending measures are estimated to cost an additional $52.6 billion over five years, more than offsetting the revenue improvement. By 2030-31, the deficit is projected at $67.8 billion, $9.5 billion higher than in June.
- The deficit is projected to be $63.3 billion in 2026-27, lower than the June forecast, reflecting a combination of stronger revenues and new federal spending.
- The Government is projected to meet its operating budget fiscal anchor in 2028‑29, with a surplus of $6.2 billion.
- The Government is projected to not meet its second fiscal anchor of a declining deficit-to-GDP ratio, with this ratio projected to rise in both 2027‑28 and 2029‑30.
- Cumulative deficits over the next five years are projected to total $333.3 billion
- Federal borrowing over the next five years is projected to rise by $732.9 billion.
- The federal debt-to-GDP-ratio – the traditional measure of fiscal sustainability – is projected to rise each year, from 40.8 per cent in 2026-27 to 42.6 per cent in 2030-31.
Quotes
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Canada faces a more challenging economic and fiscal outlook than we projected in June. Additional trade measures and ongoing uncertainty are weighing on growth in real output – what we produce as a country.
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A balanced operating budget anchor should not be interpreted as a balanced fiscal position. By design, it excludes debt-financed capital spending, meaning borrowing and debt can continue to grow while the target is being achieved.
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Federal borrowing will significantly exceed cumulative budgetary deficits over the projection period, because under accrual accounting, capital expenses and loans to Crown corporations are recorded as assets rather than liabilities. This obscures the realities of cash debt and raises questions about whether the current fiscal framework provides a complete and transparent picture of Canada's fiscal sustainability.
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Over the longer term, Canada’s economic and fiscal outlook will depend heavily on whether recent capital budget investments can translate into stronger productivity, economic capacity and prosperity.
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The PBO continues to maintain that debt-to-GDP-ratio is an important benchmark for measuring fiscal health. It will rise steadily over the five-year horizon.
Parliamentary Budget Officer