The International Monetary Fund (IMF) has taken the unusual step of commenting on Canada’s housing market.
In an economic brief, the IMF says that Canada should hold off on changes that would make home buying more affordable but should speed up efforts to reduce trade barriers within its borders. The organization also calls for policies that focus on ensuring a sound financial system, enhanced co-operation between federal and provincial governments and structural reforms.
The comments focus on productivity growth and come after IMF staff paid an official visit to Canada earlier this year.
The IMF report says that it would be "ill-advised" to stimulate activity in the housing sector, suggesting Canada should instead aim for a gradual slowdown in overheated real estate markets to reduce economic risks.
"The government is under pressure to ease macroprudential policy or introduce new initiatives that buttress housing activity," said the IMF in its report. "This would be ill-advised, as household debt remains high and a gradual slowdown in the housing market is desirable to reduce vulnerabilities."
The tightened mortgage rules, brought in by federal Finance Minister Bill Morneau, mandated that would-be borrowers undergo a stress test to determine whether they could still make payments if faced with higher interest rates or less income.
The IMF report also comments on the new free trade agreement between Canada, the U.S. and Mexico.
"The Canadian Free Trade Agreement signed in 2017 provides a platform for co-operation in reducing internal trade barriers, but several problematic aspects need to be resolved," states the report, calling for clear targets to cut exemptions and reconcile regulatory regimes. "The potential gains are sizable and could increase real GDP by almost four per cent — a much larger gain than expected from recently signed international trade agreements."
The IMF report forecasts that real gross domestic product (GDP) growth will decline to 1.5% in 2019 but will pick up again in 2020 as the economy recovers from last year's slowdown in oil-related activity. The IMF adds that, over the medium term, low productivity growth and population aging will limit potential economic growth in Canada to 1.7%. Statistics Canada reports that Canada’s GDP growth rate in 2018 was 1.8%.
