OECD raises Canadian growth outlook, but warns on home prices

Canada's economy is projected to grow this year by 2.4 per cent, equalling what's now expected in the United States and ahead of the other Group of Seven countries, according to estimates released Tuesday by the OECD.

The Paris-based organization had previously said Canada's economy was expected to rise by 2.1 per cent this year better than last year but still modest compared with past economic recoveries from downturns.

The expected increase in Canadian economic growth will be "supported by fiscal initiatives, export-market growth and the slowdown in commodity-related investment bottoming out," said the organization in its Interim Economic Outlook.

• Canada's economy grew at faster-than-expected 2.6% rate in Q4 2016
• Housing prices are hurting Canada's middle class, OECD warns
• Child-care costs in Canada among highest in the world, OECD says

The OECD also raised its estimates for several of the world's biggest economies, including the U.S. and China, but kept its world economic estimate unchanged at 3.3 per cent just slightly better than last year's rate of 3.0 per cent.

"Confidence has improved, but consumption, investment, trade and productivity are far from strong, with growth slow by past norms and higher inequality," the OECD said.

Warning on rapid home price gains

However, the OECD again raised a red flag about the rapid increase in house prices in Canada and other countries including Australia, Sweden and the United Kingdom.

"As past experience has shown, a rapid rise of house prices can be a precursor of an economic downturn," it said.

The OECD works with the governments of 35 member countries, including Canada, and major non-member countries including China, India and Brazil to collect data and analyze economic trends around the world.

The modest pickup in global growth in 2017-18 reflects the effect of ongoing and projected fiscal measures, notably in China and the U.S., and initiatives in other economies such as Canada, the report says.

"These are expected to catalyse private economic activity and push up global demand."

"Exiting the low-growth trap depends on the joint impact of macroeconomic, structural and trade policy choices, as well as on concerted and effective implementation of existing initiatives."

The OECD report said the U.S. and Canada are projected to lead the Group of Seven countries in economic growth this year, with the next highest G7 country being Germany at 1.8 per cent GDP growth.

Next year, the U.S. economy is projected to grow by 2.8 per cent and Canada's is expected to expand by 2.2 per cent, ahead of the other G7 countries. Global economic growth for 2018 is forecast to be 3.6 per cent.

In its previous report issued in November, the OECD estimated Canada's economic growth for 2016 would be 1.2 per cent, but that was upgraded Tuesday to 1.4 per cent, in line with what Statistics Canada reported last week.