Canada’s GDP Growth Slows to 0.9%: What the PBO Forecast Means for Mortgage Rates, Renewals and Homebuyers (2026)

By Mudit Chhura  |  Co-Founder, IndiBrick  |  Read Time: 9 Mins

Canada's economy is slowing. The Parliamentary Budget Officer (PBO) now projects that real GDP growth will slow to just 0.9 percent in 2026, down from its June estimate, as U.S. tariffs and Canadian countermeasures keep weighing on the economy. For homebuyers, homeowners renewing a mortgage and anyone watching mortgage rates in Canada, that raises a simple question: what does slower economic growth mean for my mortgage?

This guide breaks down the PBO's October 2026 outlook in plain language, explains how slower growth, inflation and the Bank of Canada connect to fixed and variable mortgage rates, and shows what buyers, renewers and self-employed borrowers can do right now.

Want your numbers while you read? Check your affordability with our free calculator or see today's lowest mortgage rates.

PBO Economic Outlook October 2026: The Key Numbers

The Office of the Parliamentary Budget Officer released its latest Economic and Fiscal Outlook on October 20, 2026. Here are the figures that matter most for households.

Indicator	October 2026 PBO Outlook	Earlier (June 2026) Outlook
Real GDP growth, 2026	0.9%	1.1%
Real GDP growth, 2027	1.5%	1.6%
Nominal GDP growth, 2026	5.6%	Not compared
Nominal GDP growth, 2027	3.4%	Not compared
Average annual inflation, 2026	2.8%	Not compared
Average annual inflation, 2027	2.4%	Not compared
Federal deficit, 2026-27	$63.3 billion	Not compared

Real GDP measures how much the economy actually produces. Nominal GDP includes price increases, which is why the PBO cautions that higher nominal growth reflects rising prices rather than a more productive economy. A big part of the nominal boost came from higher commodity and energy prices in the first half of 2026.

Why Is Canada's Economic Growth Slowing?

The PBO points to trade. Canada-U.S. trade talks broke down at the end of August, a new round of U.S. tariffs followed, and Canada responded with counter-tariffs. The PBO estimates the trade-weighted U.S. tariff rate on Canadian imports has moved to between 5.3 and 7.7 percent since June, and that permanent trade measures since early 2025 could lower real GDP by about 1.4 percent over the medium term compared with a no-tariff scenario.

Parliamentary Budget Officer Annette Ryan summed it up this way: "Additional trade measures and ongoing uncertainty are weighing on growth in real output – what we produce as a country."

The slowdown is happening after a strong stretch. The economy grew 3.3 percent on an annualized basis in the second quarter of 2026, the fastest quarterly pace since 2023. The PBO expects business investment to pick up in 2028 as uncertainty fades and the economy to return to its productive capacity by 2030.

Slower Growth vs Higher Inflation: The Bank of Canada's Dilemma

Normally, a weaker economy would push the Bank of Canada to cut interest rates. This time it is complicated, because inflation is rising for a different reason.

• Inflation: annual inflation rose to 3.1 percent in September from 3.0 percent in August, driven almost entirely by energy
• Energy: gasoline prices were up about 27.8 percent year over year, while inflation excluding energy was 2.2 percent
• Core inflation: the Bank's preferred measures, CPI-median and CPI-trim, eased to 1.9 and 1.8 percent, which suggests the price pressure is not spreading broadly
• Jobs: the economy lost 68,000 jobs in September, the second monthly decline in a row
• Policy rate: the Bank of Canada has held at 2.25 percent for eight consecutive meetings

The Bank's next decision is October 28, along with a new Monetary Policy Report, followed by December 9. Economists such as Charles St-Arnaud of Servus Credit Union and Leslie Preston of TD Economics expect the Bank to stay on hold, noting there is little sign higher energy costs are spreading into broader prices.

Mortgage Rate Predictions: What the PBO and Economists Expect

Nobody can predict mortgage rates with certainty, but the forecasts point in a consistent direction: a hold in the short term, with a modest rise later.

Source	Expectation
Most economists (October 2026)	Bank of Canada holds its 2.25% policy rate on October 28
PBO assumption	Bank begins raising rates in early 2027, reaching about 2.75% by mid-2027
RBC (Nathan Janzen)	No hikes in 2026, with modest tightening starting in 2027
Risk to the view	A prolonged energy price shock or a weaker Canadian dollar could force an earlier hike

Important detail: the PBO's rate path is an assumption used for its projections, not a promise. Rates can change quickly when oil prices, inflation or the dollar surprise.

How GDP and Inflation Connect to Fixed and Variable Mortgage Rates

Variable and adjustable rates

Variable mortgage rates follow the Bank of Canada's policy rate through the prime rate. If the Bank holds, variable rates stay steady. If it eventually hikes, as the PBO assumes for early 2027, variable-rate borrowers feel it first.

Fixed rates

Fixed mortgage rates follow Government of Canada bond yields, which react to growth, inflation and global markets. That means fixed rates can move even when the Bank of Canada does nothing.

IndiBrick's published 5-year mortgage rates

For reference, these are the 5-year rates published on our rates page as of October 19, 2026. They fluctuate daily and may change without notice.

Mortgage Type	5-Year Fixed	5-Year Variable
Insured (less than 20% down)	4.10%	3.29%
Insurable (renewals and transfers, 20%+ equity)	4.10% to 4.15%	3.50%
Uninsured (refinances or 30-year amortizations)	4.15%	3.60%

Rates are subject to change and qualification. See the latest on our mortgage rates page.

What a Slowing Economy Means for Homebuyers, Renewals and Investors

If you are a first-time homebuyer or new to Canada

A slower economy and softer job market can mean more negotiating room and less competition in some segments, but job security matters more than ever when you borrow. Lenders look closely at income stability, so get your documents ready and a pre-approval with a rate hold in place before you start shopping.

If you are renewing your mortgage

If you took a low rate in 2020 or 2021, your renewal payment is likely higher. Start early, compare lenders instead of accepting your bank's first offer, and stress test your budget. Slower growth does not guarantee lower renewal rates.

If you are self-employed

Slower growth can make lenders more cautious about business income. A broker can access lenders that assess income through bank statements and business documents, which can help when a single bank's approval box does not fit.

If you are an investor or business owner

Tariffs and slower trade affect sectors differently. Review your cash flow and refinancing options early, and compare structures for rental and commercial properties before costs or rates change.

Six Practical Steps in a Slowing Economy

1. Know your real budget. Use the affordability calculator and include closing costs.
2. Check today's rates. Start with our mortgage rates page so you know where the market is.
3. Get pre-approved and hold your rate. A rate hold protects you for a set period while you shop.
4. Protect your income story. Keep your employment and business documents current, since lenders look harder in uncertain markets.
5. Stress test your payment. Make sure you could handle a higher payment at renewal.
6. Talk to a broker early. Speak with an IndiBrick advisor before your renewal date or offer deadline.

Frequently Asked Questions About the Economy and Mortgage Rates in Canada

What does the PBO expect for Canada's GDP growth in 2026?

The Parliamentary Budget Officer expects real GDP growth of 0.9 percent in 2026, down from 1.1 percent in its June outlook, and 1.5 percent in 2027, down from 1.6 percent.

Why is Canada's economy slowing down?

The PBO points to U.S. tariffs, Canadian counter-tariffs and ongoing trade uncertainty after Canada-U.S. trade talks broke down at the end of August. It estimates permanent trade measures could lower real GDP by about 1.4 percent over the medium term.

Will mortgage rates go down if the economy slows?

Not necessarily. Slower growth usually supports lower rates, but inflation is 3.1 percent because of energy prices, so the Bank of Canada is expected to hold rather than cut. Fixed rates also follow bond yields, which can move independently.

What is the Bank of Canada interest rate right now?

The Bank of Canada policy rate is 2.25 percent, held for eight consecutive meetings. The next decisions are October 28 and December 9, 2026.

Will the Bank of Canada raise rates in 2026?

Most economists expect a hold in 2026. The PBO assumes the Bank begins raising rates in early 2027, reaching about 2.75 percent by mid-year. A prolonged energy price shock could change that outlook.

What is the difference between real GDP and nominal GDP?

Real GDP measures actual output after removing price changes. Nominal GDP includes inflation, so it can rise because prices are higher even if the economy is not producing more.

Should I choose a fixed or variable mortgage right now?

It depends on your budget, timeline and comfort with payment changes. Fixed rates offer certainty, while variable rates can save money if rates stay flat. An advisor can compare both for your situation.

Where can I find the lowest mortgage rates in Canada?

Rates differ by lender, term, down payment and borrower profile. A broker can compare multiple lenders for you, and you can start with the current rates on our mortgage rates page.

What should I do if my mortgage renews soon?

Start early, compare lenders, and stress test your budget for a higher payment. You can speak with an IndiBrick advisor to review your renewal options before your date arrives.

The Bottom Line

The PBO's message is that Canada's economy is growing, but slowly, and trade uncertainty is the main reason. For borrowers, the most useful takeaway is that rates are unlikely to fall quickly, because inflation from energy keeps the Bank of Canada cautious, while a modest rise in 2027 is possible.

The best protection is to replace guesses with numbers: check today's lowest rates, find out what you can afford, and talk to an advisor before you decide.

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Sources: Financial Post (Paula Tran, Oct 20, 2026) and Office of the Parliamentary Budget Officer, Economic and Fiscal Outlook, October 2026; Canadian Press and BNN Bloomberg; Statistics Canada September 2026 CPI as reported by MPA; IndiBrick published rates as of October 19, 2026. Forecasts and rate assumptions are not guarantees. Rates and program details are subject to change and qualification. This article is general information and not financial, tax or legal advice.