Canada runs $26.4 billion year‑to‑date deficit as growth flatlines under tariff pressure
Ottawa’s deficit is widening even as growth stalls and trade tensions bite, setting up a tougher backdrop for Canadian assets and policy.
According to BNN Bloomberg, the federal government posted a $26.4bn deficit in the first eight months of the 2025–26 fiscal year, compared with a $22.7bn shortfall over the same April–November period a year earlier.
Revenue rose to $317.2bn from $311.3bn, driven by higher customs import duties tied to countermeasures against US tariffs and stronger corporate and personal income tax revenues.
Spending still ran ahead.
BNN Bloomberg says program expenses excluding net actuarial losses climbed to $304bn from $294.9bn, reflecting higher direct program expenses and larger major transfers to persons, provinces, territories and municipalities.
Public debt charges edged down to $36.3bn from $36.4bn as lower short‑term interest rates on treasury bills and lower net interest on cross‑currency swap transactions offset other pressures, while net actuarial losses increased to $3.3bn from $2.7bn.
Reuters puts the year‑to‑date shortfall at $26.39bn and notes that expenditures grew faster than revenues, with program expenses up 3.1 percent across all major categories.
Year‑to‑date revenues rose 1.9 percent, largely on higher income from customs import duties and corporate and personal income tax.
On a monthly basis, Reuters reports a November deficit of $8.02bn, slightly narrower than the $8.21bn deficit in November 2024, suggesting only limited near‑term improvement in the fiscal flow.
Those fiscal numbers sit on top of a softening economy.
Reuters reports that gross domestic product was flat month‑over‑month in November after a 0.3 percent contraction in October, missing expectations for a modest gain.
It says US President Donald Trump’s tariffs on steel, automotive, lumber and aluminum have “hobbled output” in those sectors, contributing to a 0.3 percent contraction in goods‑producing industries, while services‑producing industries did most of the work to keep overall GDP from falling again.
November’s data imply the economy contracted at a 0.5 percent annualized pace in the fourth quarter, undershooting the Bank of Canada’s projection of flat growth.
Statistics Canada expects full‑year 2025 growth of 1.3 percent, Reuters adds, highlighting a weak hand‑off into 2026.
Bloomberg similarly reports that industry‑based GDP points to a 0.5 percent annualized contraction in the fourth quarter, even though a flash estimate showed 0.1 percent growth in December after flat output in November.
The earlier 2.6 percent annualized rise in real GDP in the third quarter — boosted by falling imports and higher military spending — was short‑lived, and that the data reflect an uneven expansion as the trade‑dependent economy adjusts to volatile US trade policy.
Sector detail underlines the pressure points.
Reuters says services‑producing industries, which make up roughly three‑quarters of output, led November gains through retail trade, transportation and warehousing, and educational services.
Wholesale trade fell 2.1 percent, its sharpest drop since April of the previous year.
Manufacturing, which accounts for more than 8 percent of GDP, contracted 1.3 percent, with motor vehicles and parts output down 6.4 percent because of a global semiconductor shortage, and agriculture, forestry, fishing and hunting down 1.1 percent.
Bloomberg adds that manufacturing output was 4.9 percent lower than a year earlier and that durable goods manufacturing is at its weakest outside the COVID‑19 period since mid‑2011, while forestry and logging recorded a 2.8 percent monthly decline in November and fell to a record low as firms cut production.
Monetary policy is holding steady against that backdrop of wider deficits and weaker growth.
The Bank of Canada kept its key rate at 2.25 percent for a second straight decision, saying rates are “at about the right level” to keep inflation near its 2 percent target while helping the economy adjust to reduced trade flows with the US, and that it is “prepared to respond” if the outlook changes.
In its monetary policy report, Bloomberg says, the Bank projected that the economy will remain in excess supply through 2027, while private‑sector economists it surveyed expect GDP growth of 1.2 percent this year and 1.8 percent next year.
At the same time, the Bank is openly flagging higher‑than‑usual downside risks.
In an interview with Reuters, Governor Tiff Macklem said there is “unusual potential for a new shock, a new disruption,” pointing to elevated geopolitical risks and US trade policy.
He cited Trump’s repeated tariff threats against Canada and the review of the United States‑Mexico‑Canada free trade deal as clear risks to the Bank’s outlook.
He also warned that the unpredictability of US policy has “dented” the US dollar’s role as the global safe asset, even though there are “not a lot of great alternatives.”
