Canada 2025/26 Deficit Less than Expected, Trims Growth Forecasts

  • Canada's federal government posted a smaller budget deficit than expected for the 2025/26 fiscal year and slightly trimmed its growth forecasts, painting a picture of modest fiscal improvement set against a deteriorating economic outlook shaped by US tariffs.
  • The spring economic statement, released by the finance ministry on Tuesday, put the 2025/26 deficit at C$66.9Bn, less than the C$78.3Bn shortfall predicted in the November 2025 budget. Officials attributed the better outcome to a combination of spending discipline and higher revenues from crude oil sales, reflecting Canada's continued reliance on its energy sector as a fiscal backstop.
  • Despite the headline improvement, the statement carried a cautious tone on growth. Real GDP is forecast to expand by just 1.1% in 2026, down from the 1.2% expected in November, and by 1.9% in 2027, trimmed from 2.0%. Forecasts for 2028 and 2029 were left at 1.9%, though the 2029 figure represented a downward revision from 2.0% previously.
  • Real GDP is not expected to return to its pre-tariff trajectory and will remain approximately 1.6% below the level projected in the autumn 2024 outlook by 2029. That is a substantial permanent shortfall and reflects the scale of disruption that trade tensions with Washington have introduced into Canada's medium-term planning.
  • Forward deficit projections were left largely intact. The ministry left its deficit forecasts for the next four fiscal years virtually unchanged from November, with the 2026/27 shortfall seen at C$65.3 Bn, 2027/28 at C$63.1Bn, 2028/29 at C$57.7Bn and 2029/30 at C$56.2 Bn. A figure for 2030/31 of C$53.2Bn was also released. The gradual narrowing reflects a slow consolidation path rather than any urgent push toward balance.
  • On debt sustainability, the government offered some reassurance. The finance ministry also said the federal debt-to-GDP ⁠ratio in 2025/26 was 41.1%, compared to the 42.4% forecast in November. The ministry projects the ratio will rise only marginally to 41.8% in 2027/28 before stabilising, suggesting the debt burden is seen as broadly manageable even under the revised growth assumptions.

(Sources: Reuters & Investinglive)