Briefing highlights
- OECD raises forecast for Canada
- But group worries about housing
- Markets at a glance
OECD upgrades forecast
The OECD is painting a much better picture of Canada's economy, but is worried about the threat of a housing bust.
In its interim outlook today, the Organization for Economic Co-operation and Development raised its projection for growth in Canada this year by 0.4 of a percentage point from its earlier forecast, to 3.2 per cent. Its call for 2.3-per-cent expansion next year remained unchanged.
This year's projection is the best among the G7.
The OECD's upgrade is certainly in line with indicators of late, notably the blistering 4.5-per-cent annualized pace of growth in the second quarter of the year.
The Bank of Canada, too, is more optimistic on the economy, having raised its benchmark interest rate twice.
"The revision to GDP is broadly in line with the rising consensus (we are now at 3.1-per-cent growth for this year), and isn't really controversial (especially when we already have data up to Q2)," Bank of Montreal chief economist Douglas Porter said of the OECD report.
"Slightly more notable is their 2.3-per-cent call for next year - that would imply a bit less cooling in the next few quarters than I suspect most are now forecasting. But, again, not really controversial, perhaps a tad above consensus."
CIBC World Markets chief economist Avery Shenfeld, in turn, said the OECD's forecast for this year "looks a shade high given data from the last two months showing cooling exports and manufacturing.
Like others, the OECD is still fretting about the threat from inflated housing markets, and that's where Canada comes in for special mention.
"In some advanced economies, including Australia, Canada, Sweden and the United Kingdom, house prices are elevated relative to rents, raising financial stability risks if rising interest rates were to trigger a housing market correction," it said.
Housing and household debt are huge issues in Canada, where Vancouver and Toronto, in particular, are the focus of the angst. Just this week, the Bank for International Settlements also warned that high consumer debt levels threaten the financial system.
One might take solace in the efforts of provincial and federal governments to tame those markets. But Vancouver is already rebounding from a policy-induced sales slump and the Toronto market is showing signs of bottoming, analysts say.
BMO's Mr. Porter noted that Canadians have heard these housing fears for years.
"What is interesting is how they've framed the concern - fretting about rising interest rates causing stress for borrowers," he said.
"Yet, it was the years and years of persistently low interest rates that led us into this issue on housing in the first place (and many would assert that the longer they are kept extraordinarily low, the greater the risk of an accident in housing)."
There are issues here for the Bank of Canada, as well, said CIBC's Mr. Shenfeld.
"On the issue of housing, rather than just rising interest rates, the threat to financial stability would come from a combination of higher interest rates and job losses by those with heavy debts," he said.
"That's one key reason why the Bank of Canada will be very careful to avoid raising rates too quickly, having promised to monitor how well households are coping as it does so."
Over all, the OECD didn't change much to its outlook for the global economy, holding its growth forecast steady at 3.5 per cent for this year, and nudging it up slightly to 3.7 per cent for next.
"The upturn has been more synchronized across countries," the group said, noting investment, employment and trade are picking up.
"However, strong and sustained medium-term global growth is not yet secured," it added.
"The recovery of business investment and trade remains weaker than needed to sustain healthy productivity growth. Wage growth has been disappointing, keeping inflation at low levels. Strong future growth in emerging market economies will depend on deeper reform."
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