Oct 21, 2026
Canada’s economy is still growing, but barely. And according to Parliament’s budget watchdog, the latest round of U.S. tariffs has made the road ahead bumpier for households already dealing with higher prices at the pump and upcoming mortgage renewals.
The watchdog’s newest forecast trims expected growth this year to below 1% and warns that unemployment could climb before we turn the page on 2026. It also projects federal deficits topping $60 billion for years to come.
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While those headline figures reflect Ottawa’s balance sheet, their impact spills over into job security, interest rates and retirement benefits.
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What did the budget watchdog actually forecast?
So what did they project would happen? On Oct. 20, the Parliamentary Budget Office (PBO), an independent office that gives Parliament nonpartisan economic and fiscal analysis, released its Economic and Fiscal Outlook – October 2026.
“Canada faces a more challenging economic and fiscal outlook than we projected in June,” Parliamentary Budget Officer Annette Ryan said in a news release.
The PBO now expects real gross domestic product (GDP) to grow 0.9% in 2026 and 1.5% in 2027, down from 1.1% and 1.6% in June. The downgrade followed a breakdown in Canada-U.S. trade talks at the end of August, which brought another fresh round of tariffs and counter-tariffs. If the trade measures in place since early 2025 become permanent, the PBO estimates they could shrink the economy by about 1.4% over the medium term.
On the budget front, the PBO projects a $63.3 billion deficit for 2026-27, peaking at $70.2 billion in 2027-28.
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Why could a slowdown hit your paycheque first?
How does a slower economy impact the average Canadian’s household budget? For most people, the first place is the job market.
The unemployment rate dropped to 6.4% this summer. The PBO expects it to rise to 6.7% by the end of 2026, as employment falls faster than the labour force following the new trade measures. The PBO also expects exports and business investment to weaken through the rest of the year, with firms delaying expansion plans.
That doesn’t mean layoffs are coming for everyone. Workers in trade-exposed industries face the most uncertainty, however. Ottawa has announced it will provide $7.5 billion in support for workers and businesses affected by U.S. tariffs.
Will higher prices and interest rates squeeze household budgets?
The PBO warns costs could rise even as growth slows, at least in the near term. This means your household budget could take a hit. The PBO is projecting that inflation will average 2.8% in 2026, driven by higher energy prices tied to shipping disruptions in the Strait of Hormuz and by price pressures from Canada’s own countermeasures.
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For borrowers, the more important detail is the PBO’s interest rate assumption. In their model, the Bank of Canada raises its policy rate early in 2027 and reaches 2.75% by mid-year. The PBO stresses this is a modelling assumption, not a forecast or advice on monetary policy.
Even so, the report flags a clear risk that households renewing mortgages taken out when rates were lower could face higher payments, leaving less money for everything else.
What does Ottawa’s rising debt mean for you?
Federal debt impacts personal finances more than most Canadians realize. The PBO projects federal debt per person will grow from $33,436 this fiscal year to $39,191 by 2030-31.
Interest costs on that debt are the government’s fastest-growing expense. Per person, these costs rise from $1,419 now to $1,952 by 2030-31. As interest takes a bigger share of revenue, less is available for priorities such as tax relief or new programs.
What to do now
You have no control over tariffs, but you can reduce how much a slowdown costs you:
- Build breathing room: Top up emergency savings in a high-interest savings account or Tax-Free Savings Account (TFSA), especially if you work in a trade-exposed sector.
- Check when your mortgage is set to renew: If your mortgage renews in 2027, calculate your payment at a higher rate and talk to your lender or a broker early.
- Pay down variable-rate debt first: Lines of credit and other variable-rate balances would feel any rate increase immediately.
- Apply for OAS early if you’re nearing 65: Service Canada was handling about 414,000 active applications for Old Age Security (OAS) and related benefits in September. The PBO notes most of these files are moving through standard processing times, so the figure doesn’t represent late or delayed payments.
- Watch the federal budget: The PBO’s projections don’t include measures to be announced in the upcoming federal budget, which could change the outlook for taxes and benefits.
The financial outlook depends on more than tariffs. As Ryan put it, “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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Leslie Kennedy served as an editor at Thomson Reuters and for Star Media Group, followed by a number of years as a writer and editor and content manager in marketing communications, before returning to her editorial roots. She is a graduate of Humber College’s post-graduate journalism program and has been a professional writer and editor ever since.
