Canada trims growth forecasts, posts smaller-than-expected deficit in spring statement

Canada's 2025/26 deficit came in at C$66.9bln, below the C$78.3bln Nov forecast. GDP growth trimmed to 1.1% for 2026. Tariffs seen keeping output 1.6% below pre-tariff path by 2029. Summary: The 2025/26 federal deficit came in at C$66.9 billion, well below the C$78.3 billion forecast from November 2025 Improvement was driven by spending restraint and higher crude oil export revenues Real GDP growth forecast for 2026 cut to 1.1% from 1.2%; 2027 trimmed to 1.9% from 2.0% The ministry warned the economy is not expected to return to its pre-tariff level, remaining about 1.6% below the 2024 autumn outlook by 2029 Deficit forecasts for 2026/27 through 2029/30 left virtually unchanged at C$65.3bln, C$63.1bln, C$57.7bln and C$56.2bln respectively Federal debt-to-GDP ratio for 2025/26 revised down to 41.1% from 42.4% in November, but expected to edge higher to 41.9% by 2028/29 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$66.9 billion, a significant improvement on the C$78.3 billion shortfall pencilled in during 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. The most pointed warning in the document concerned the lasting impact of US tariffs. The ministry stated that 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 shortfall for 2026/27 is seen at C$65.3 billion, followed by C$63.1 billion in 2027/28, C$57.7 billion in 2028/29 and C$56.2 billion in 2029/30. A figure for 2030/31 of C$53.2 billion 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 federal debt-to-GDP ratio for 2025/26 was revised down to 41.1% from the 42.4% forecast in November, with the ratio for 2026/27 also revised lower to 41.5% versus the prior estimate of 43.1%. 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. The statement stops well short of a full budget and offers no major new spending measures. It serves mainly as a recalibration of Canada's fiscal and economic position as the government navigates an external environment that Ottawa acknowledges has fundamentally altered the country's growth prospects. --- The statement is broadly neutral to mildly positive for Canadian assets. The smaller-than-expected 2025/26 deficit and improved debt-to-GDP readings offer some reassurance on fiscal discipline, which could provide modest support for the Canadian dollar and government bonds. However, the downward revisions to GDP growth and the explicit acknowledgement that the economy will remain roughly 1.6% below its pre-tariff trajectory by 2029 are a drag on sentiment. The near-flat deficit path through to 2030/31 signals Ottawa is