Canada got a pat on the back from the Organization for Economic Co-operation and Development (OECD) for trying to boost economic growth through infrastructure spending, but the international economic think-tank said more action is needed to address overheating in major pockets of the housing market.
“Canada actually is a good example of a country taking the right measures to break out of the low-growth trap,” Angel Gurria, secretary general of the OECD, said Monday during a news conference with federal Finance Minister Bill Morneau.
Higher public investment in Canada means that monetary policy isn’t being left to do all the “heavy lifting” to support the economy, Gurria said.
While many countries are curtailing spending, Gurria said Canada is pursuing a different approach to improving sluggish economic growth since the 2008 world financial crisis.
Initial signs are promising, with unemployment falling and growth reviving despite wildfires in the Fort McMurray area that hammered the oilpatch and Alberta’s economy, he added.
Morneau said the plan to make $50 billion in strategic investments over six years is forecast to grow the country’s economic output by 0.5% this year and 1% in 2017, creating 100,000 jobs.
“There’s no doubt it’s a challenging time for the global economy and we recognize that external developments continue to impact the outlook for Canada,” he said.
He pointed to the volatility of oil prices, the Chinese economy, the strong U.S. dollar and the state of the Canadian housing market.
The OECD said in a report that the federal government has taken action to cool the housing market, such as boosting down payments for insured mortgages beyond $500,000 but recommended further measures targeted to regional markets.
The report also noted the sharp increase in housing prices in major centres such as Toronto and Vancouver along with a rise in already high household debt.
It said those factors are squeezing middle class families.
Morneau said it is a complex market with different situations in cities.
“In order to come up with the right approach to ensuring that Canadians can continue to buy homes, we are looking very closely at all the dynamics in that market,” he told reporters.
Among the areas being examined are demographic changes, labour markets, and the impact of foreign investment in housing.
The OECD’s report also said Canada’s non-resource industries have offset some of the economic weakness created by slumping commodity prices.
It said output has dropped sharply in Canadian industries affected by commodity prices but had risen in the rest of the economy.
The Paris-based organization said the shift towards non-resource sectors has led to new job creation to offset some of the losses in the energy sector.