Canada is standing on more solid fiscal ground than its biggest trading partner — but that doesn’t mean we can relax.

In the latest podcast episode of Canada’s Economy, Explained, host Marwa Abdou talks with economist Dr. Trevor Tombe, Professor of Economics at the University of Calgary, and Director of Fiscal and Economic Policy at the School of Public Policy. Tombe outlines why Canada’s public finances are in better shape, and why we still have work to do to stay competitive.

As Tombe explains, while the United States faces a projected $1.9 trillion deficit — roughly 6.2% of its GDP — Canada’s deficit stands at a more manageable 1.6%. “If Canada had a deficit of the same scale as the U.S., we’d be looking at $200 billion instead of $48 billion,” he says in the episode.

The fiscal gap between the two nations isn’t just about numbers. It’s changing borrowing costs, investment confidence, and long-term economic prospects.

Key Points

• Canada’s debt-to-GDP ratio is about 42%, compared to over 100% in the U.S.
• Canadian borrowing costs are 1.2% lower than U.S. costs, the widest gap since 1870.
• A spike in trade uncertainty could cut Canadian business investment by 25%.

Why It Matters

The risks facing America aren’t limited to its own borders. A weaker U.S. economy spills over into Canada through trade channels and investment flows.

Tombe warns that uncertainty around future U.S. trade policies has already caused a record spike in business uncertainty in Canada — up 500% compared to a year ago. “If the historical relationship holds, that spike alone could drop investment by 25% and raise unemployment by a full percentage point,” he explains in the episode.

Three Takeaways

• Canadian policymakers must stay vigilant. Federal debt is manageable, but provincial debt risks are growing fast.
• Boosting productivity is critical. Canada’s productivity growth slowed to 0.2% annually — an alarming sign.
• Domestic policies matter most. Our economy’s future depends more on internal reforms than on U.S. tariffs.

Public finances are sustainable — but only if Canada tackles its slow productivity growth now. Provinces, not Ottawa, will face the biggest financial battles ahead with aging populations and healthcare demands.

Tombe points out that without action, Canada’s economy would continue to trail behind, forfeiting hundreds of billions of dollars in lost output. “Had historical trends continued, our economy today would be about 18% larger,” he says.

The episode reminds listeners that while Canada may be doing better than the U.S., complacency is a bigger threat than any fiscal number. Your focus, whether you’re a voter, policymaker, or business owner, should be on the fundamentals that drive economic strength: investment, productivity, and smart policy.