Economic and Fiscal Outlook – June 2026

This report provides a baseline projection to help parliamentarians gauge potential economic and fiscal outcomes under current policy settings. Our outlook incorporates economic data up to May 8 and new measures announced by the Government in Budget 2025 and the Spring Economic Update 2026 (SEU).

Our baseline projection assumes that the economic effects of tariffs and countermeasures in place as of May 2026 will persist throughout the projection period. This also implies that any new trade agreement with the United States would be less favourable than CUSMA, with economic impacts roughly equivalent to the current tariffs and countermeasures.

Under status quo policies (on a cash basis), the outlook assumes core defence spending of 2.0 per cent of GDP in 2025-26, rising to 2.5 per cent by 2030-31. This represents a partial contribution toward Canada’s commitment under the North Atlantic Treaty Organization (NATO) Defence Investment Pledge of investing 5 per cent of gross domestic product (GDP) by 2035, including 3.5 per cent for core defence spending and up to 1.5 per cent for ancillary defence and security-related expenditures.

The outlook also reflects planned savings from the Comprehensive Expenditure Review (CER), in line with the Government’s stated profile.

The following provides a condensed overview of PBO’s Economic and Fiscal Outlook (EFO). Projection details are provided in Appendices A to I.

The Canadian economy showed resilience in 2025, with real GDP growing by 1.7 per cent, supported by strong household consumption, despite disruptive trade policy actions and an uncertain geopolitical environment.[^1] Growth was uneven in the second half of the year, expanding by 2.4 per cent in the third quarter before contracting by 0.6 per cent in the fourth. The economy entered 2026 with persistent trade uncertainty and slower population growth weighing on the near-term outlook.