OECD paints rosier picture for economy
Paris-based group sees ‘vulnerabilities’ in Canada due to hot housing market
The OECD has boosted its outlook for the Canadian economy for 2017, but it continues to express concern over Canada’s housing market.
The Paris-based Organization for Economic Co-operation and Development forecasts that Canada’s gross domestic product will grow 2.4 per cent in 2017, an increase from its November 2016 economic outlook of 2.1 per cent. But looking out to 2018, the OECD expects Canada’s economy will grow 2.2 per cent, a small decrease from the November outlook of 2.3 per cent.
“Growth in Canada is expected to increase, supported by fiscal initiatives, export-market growth and the slowdown in commodity-related investment bottoming out,” the OECD said.
Indeed, separate from Tuesday’s OECD forecast, Statistics Canada reported that Canadian exports rose 0.5 per cent in January, while Canada posted its third monthly trade surplus in a row.
The OECD’s latest interim economic outlook sees the global economy going through a timid recovery that could be easily spooked by several factors, among them housing affordability.
The OECD flagged Canadian house prices, particularly those in Vancouver and Toronto, as a risk in a report it released last June on Canada. That concern remains, with the OECD reporting that Canada’s house price-to-risk ratio is at its highest level since 1980.
In Tuesday’s economic outlook, the OECD questions whether advanced economies have put too much stock in keeping interest rates low for an extended period of time. The OECD said this has led to higher levels of debt and inflated asset prices. Canada, Australia, Sweden and the U.K., in particular, have experienced a rapid rise in house prices, the OECD said.
“Vulnerabilities remain in some advanced economies from rapid house price increases,” the OECD said. “As past experience has shown, a rapid rise of house prices can be a precursor of an economic downturn.”
Tuesday’s report does not change the OECD’s outlook for global growth for this year and next. The organization expects global GDP to grow by 3.3 per cent in 2017 and 3.6 per cent in 2018. The OECD attributes the growth to initiatives in several large economies, among them China, the U.S., the eurozone and Canada. “These are expected to catalyze private economic activity and push up global demand,” the organization said.
Yet the OECD’s forecast is loaded with caution. While the OECD notes that confidence has improved, it describes global consumption, investment trade and productivity as far from strong. What’s more, the global think tank is worried this fragile growth could be easily disrupted.
As past experience has shown, a rapid rise of house prices can be a precursor of an economic downturn.