Slow economic growth ahead as uncertainty rises, says PBO
Ottawa (Ontario), March 5, 2025
The Parliamentary Budget Officer (PBO) today released his Economic and Fiscal Outlook (EFO). The report provides a baseline projection to help parliamentarians gauge potential economic and fiscal outcomes under current policy settings.
PBO projects the Canadian economy to grow by 1.7 per cent in 2025, as uncertainty and slowing population growth weigh on business investment and consumer spending.
“As the new federal immigration policies curb population growth, we expect economic activity to slow down in 2025 and 2026”, says Yves Giroux, PBO. “Rising uncertainty surrounding trade actions is also likely to dampen consumer and business spending in the near term. However, lower interest rates are expected to help sustain economic activity, gradually reducing economic slack.”
The PBO outlook incorporates economic data up to February 14 and new measures announced by the Government in its 2024 Fall Economic Update. For the current fiscal year, 2024-25, PBO projects the budgetary deficit to fall to $50.1 billion (1.6 per cent of the gross domestic product or GDP) from the $61.9 billion (2.1 per cent of GDP) deficit recorded in 2023-24.
Assuming no new measures are introduced, and existing temporary measures sunset as scheduled, the deficit is projected to resume its downward trajectory, falling to $24.6 billion (0.7 per cent of GDP) in 2029-30.
“Under status quo policy, the federal debt-to-GDP ratio is projected to fall over the projection horizon, dropping to 39.2 per cent in 2029-30, but will remain well above its pre-pandemic level of 31.2 per cent of GDP in 2019-20,” adds Mr. Giroux.
The PBO report highlights risks and uncertainty surrounding the outlook. Setting aside risks related to the imposition of threatened U.S. tariffs and retaliatory measures, we evaluate that the risks to our baseline economic and fiscal projections are roughly balanced.
The PBO’s risk assessment includes impact estimates derived from an illustrative trade conflict scenario, which presents the economic implications of potential U.S. tariffs and Canadian retaliation. Our modelling suggests that these policies would permanently reduce Canada’s real GDP by about 2 per cent over the medium-term relative to a control scenario in which no tariffs are imposed.
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