In presenting the fall economic statement last November, Finance Minister Chrystia Freeland pledged new measures to keep federal deficits in check, saying Ottawa aimed to cap the 2023-24 amount at or below the spring budget projection of $40.1 billion, or 1.4 percent of GDP. The Finance Department reiterated in the spring budget released in April that the government was on track to fulfill its promise.

The PBO provided a different view in its latest assessment.

The outlook for next year is more optimistic, according to the budget watchdog, as it anticipates that the Bank of Canada will engage in more interest rate cuts to spur the economy.

"We anticipate the Bank of Canada will continue to gradually reduce its policy rate until it reaches its estimated neutral level of 2.75 per cent in the second quarter of 2025," the PBO report said.

"We expect real GDP growth will rebound to 2.2 percent in 2025, as lower borrowing costs provide a boost to consumer spending and business investment, and exports pickup."