The Organization for Economic Co-operation and Development says Canada’s economy is growing so fast the country might soon hit full employment, but it remains worried about “overheating” housing markets in Vancouver and Toronto.
Canada’s gross domestic product will grow by 2.8 per cent during 2017, double last year’s pace, the Paris-based think-tank projects, fuelled by gains in household wealth, a pick-up in oil and gas industry investment,
“The federal government’s mildly expansionary fiscal stance will hasten the economy’s return to full employment,” the organization said in a report released Wednesday. “The
Statistics Canada will release its jobs report for May on Friday. The unemployment figure for April was 6.6
But the OECD is concerned about the housing markets in Toronto and Vancouver. The OECD thinks Canada’s economy is expanding fast enough for the Bank of Canada to push interest rates higher toward the end of this
Provincial governments in Ontario and B.C. have introduced transfer taxes that aim to ease the Toronto and Vancouver residential real estate markets, but the OECD said the impact from those taxes will likely be short-lived.
The OECD is also concerned that a broad expansion of rent controls in Ontario may discourage the construction of new rental buildings. This may actually harm the people Ontario’s new rules are supposed to help, the OECD said. “Low rental supply would hamper
But rate hikes and transfer taxes won’t fully address the risks the Canadian economy faces from a “disorderly” housing price correction, the OECD said.
The Canadian government last year introduced some rules that are designed to keep riskier borrowers out of the housing market. The OECD said Canada needs to bring even more of this type of “macro-prudential” regulation. For example, it said Canada could use different debt-to-income constraints in regions that have high home prices.
“Higher interest rates will take some of the wind out of booming housing markets and rapidly rising house prices,” the OECD said. “Nevertheless, macro-prudential measures, which were strengthened during 2016, should be tightened further to address economic and financial risks related to the housing market.”
The OECD’s outlook for Canada is quite bullish. The OECD’s forecast tops the Bank of Canada’s estimate for Canadian growth this year of 2.6
Canada’s economy is getting a push from what the OECD described as the federal government’s “mildly expansionary” deficit spending. Federal government spending accounted for 1.9 per cent of Canada’s 2016 GDP, up from 0.8
But the OECD is also expecting the private sector to drive growth. Business investment dropped sharply after the downturn in the oil and gas sector, but the OECD now sees signs of a “modest” pick-up in investment, particularly if oil remains above US$50 a barrel.
Indeed, although the OECD expects Canada’s economy to grow at a slower rate of 2.3
And Canada needs that business investment and export growth. Canada’s recent economic gains have been due to private consumption, housing
The OECD said Canada faces several potential downside risks, chief among them the possibility of a “disorderly” decline in the Toronto and Vancouver housing markets.
“Such a correction would reduce residential investment, household
The OECD also cautioned that Canadian export growth could be hit by protectionist measures, such as recently imposed U.S. tariffs on Canadian softwood lumber.
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