If NAFTA talks fail or Canada’s inflation runs above acceptable levels, there could be a knock-on effect for the housing market, with a correction possible.
That’s according to the latest outlook from the OECD global policy forum which has updated its outlook to reflect changes since the last report in May.
The outlook for the global economy has been reduced to 3.7% for 2018 and 2018, down 0.1 percentage points, while Canada is expected to grow 2.1% this year (unchanged) and 2% in 2019 (down 0.2 pp).
While the outlook for Canada is essentially strong, driven by exports and a resurgence of the auto and energy sectors, there are still headwinds, especially with high home prices and high levels of household debt.
These include the NAFTA agreement, which if it does not conclude with terms as good or better than the current deal, could stifle growth. A regulatory burden to increasing oil pipeline capacity would also have a negative impact on growth.
Additionally, if inflation rises too high, the Bank of Canada may need to hike interest rates beyond current expectations, which the OECD says could impair the ability of many households to service their mortgages, leading to a housing market correction.