The Parliamentary Budget Office has trimmed its outlook for economic growth for this year and next amid new U.S. tariffs and Canadian countermeasures.

In a revised outlook on Tuesday, the federal budget watchdog said it now projects real gross domestic product growth of 0.9 per cent for this year and 1.5 per cent in 2027.

The forecast is down from estimated growth of 1.1 per cent and 1.6 per cent, respectively, issued in June.

“Canada faces a more challenging economic and fiscal outlook than we projected in June,” Annette Ryan, parliamentary budget officer, said in a news release.

“Additional trade measures and ongoing uncertainty are weighing on growth in real output — what we produce as a country.”

Trade talks between Canada and the U.S. broke down at the end of August followed by a new round of U.S. tariffs and Canadian counter-tariffs.

The PBO said it also now projects a budgetary deficit of $63.3 billion for the 2026-27 fiscal year, which will peak at $70.2 billion in 2027-28.

Relative to its June outlook, the deficits are $3 billion higher per year on average over 2026‑27 to 2030‑31, as new spending measures more than offset stronger revenues, the watchdog said.

“The PBO continues to maintain that debt-to-GDP ratio is an important benchmark for measuring fiscal health,” Ryan said. “It will rise steadily over the five-year horizon.”

She added: “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.”

Meanwhile, the PBO assumes the Bank of Canada will start raising its policy rate in early 2027 “to keep inflation expectations anchored,” reaching 2.75 per cent by mid-year.

On inflation, the watchdog expects higher energy prices will keep the annual inflation rate elevated in 2026, averaging 2.8 per cent, before easing to 2.4 per cent in 2027.