Mortgage renewals, a softer job market and the Nov. 5 budget loom over a cautious outlook
Parliament’s budget watchdog has cut its 2026 growth forecast to 0.9% and projects federal deficits above $63 billion through 2030-31, citing a new round of US tariffs and Canadian countermeasures.
The Parliamentary Budget Office (PBO) released its Economic and Fiscal Outlook last week. It now sees real GDP growth of 1.5% in 2027, down from 1.1% for 2026 and 1.6% for 2027 in June. The PBO estimates that trade measures in place since early 2025 could shrink the economy by about 1.4% over the medium term if they become permanent.
That change arrives just ahead of the next Bank of Canada decision, with economists currently divided on whether the central bank will hike rates or hold steady.
The PBO assumes the Bank of Canada starts raising its policy rate early in 2027 and reaches a neutral 2.75% by mid-year. It stressed this is a projection assumption, not advice on monetary policy. Markets are pricing in something sooner. A Reuters poll found 19 of 34 economists expect a quarter-point hike on Oct. 28.
For households, the PBO flagged that consumption could prove weaker than projected as those “renewing mortgages taken out when interest rates were lower face higher payments, leaving less income for other spending.” It also expects residential investment to recover from a 2026 decline, helped by new federal housing measures and borrowing costs well below their 2023-24 peak.
“Canada faces a more challenging economic and fiscal outlook than we projected in June,” parliamentary budget officer Annette Ryan said. “Additional trade measures and ongoing uncertainty are weighing on growth in real output – what we produce as a country.”
Jobs, inflation and the rate path
The PBO expects unemployment to rise to 6.7% by the end of 2026 as employment falls faster than the labour force. Its figures predate Statistics Canada’s September report, which showed 68,000 jobs lost and unemployment at 6.5%.
Inflation should average 2.8% in 2026, driven by higher energy prices tied to disrupted shipping through the Strait of Hormuz and by pressure from Canada’s countermeasures.
Deficits and the Nov. 5 budget
The PBO projects a $63.3-billion deficit in 2026-27, down from $71.8 billion in its June outlook. It then sees the shortfall peaking at $70.2 billion in 2027-28 and easing to $67.8 billion by 2030-31. New measures, including $36 billion for the Productivity Mega Deduction and $7.5 billion in tariff support, cost $52.6 billion over five years. That more than offsets $37.4 billion in additional fiscal room from stronger revenues.
Public debt charges are the fastest-growing federal expense, rising from $59.3 billion in 2026-27 to $83.0 billion by 2030-31. Federal debt per person is projected to climb from $33,436 to $39,191 over the same period. A permanent 100-basis-point rise in rates would add $5.1 billion to debt charges in the first year.
The PBO expects Ottawa to meet its operating-balance anchor in 2028-29, but not its goal of a declining deficit-to-GDP ratio. “A balanced operating budget anchor should not be interpreted as a balanced fiscal position,” Ryan said. “By design, it excludes debt-financed capital spending, meaning borrowing and debt can continue to grow while the target is being achieved.”
Finance minister François-Philippe Champagne said the budget, due Nov. 5, will “outline the next steps in our plan to build a stronger, more resilient and more affordable Canada,” The Canadian Press reported. The PBO’s numbers do not include measures from that budget. It judges risks to its outlook as roughly balanced, with trade policy the dominant uncertainty.
For brokers, the report is a prompt to revisit renewal scenarios with clients, particularly those in trade-exposed work, before the Bank’s decision and the budget land.
