The federal government and some of the country's leading economists remain worried about Canada's housing market and rising household debt and are cautioning Canadians against borrowing too much.
However, they are a little more optimistic about the overall state of the Canadian economy than they were just last fall, and now project stronger-than-expected growth in 2012.
Finance Minister Jim Flaherty met Monday with 13 private-sector economists for his traditional pre-budget consultation to get their assessment of the Canadian economy as Ottawa prepares to deliver the federal budget on March 29.
Flaherty and a handful of the economists said they continue to be concerned about household debt levels in Canada and a somewhat overheated housing market -- especially on condominiums -- while the minister was also cautioned about cutting more than the $4 billion in annual spending that the government first identified last year.
Some of the big banks are suggesting Ottawa also consider implementing "measured actions" for the housing market, such as reducing the maximum amortization period for mortgages back to 25 years, and consider increasing the minimum down payment, possibly to 10%.
"There has been some moderation in the housing market. I remain concerned about the condo market, quite frankly," Flaherty told reporters after his one-hour meeting in Ottawa.
"I again encourage Canadians to be careful in the amount of debt they take on in terms of residential mortgages because (interest) rates will go up some day."
Flaherty said he's pleased that the 2011-12 federal deficit is on pace to be much smaller than the $31 billion forecast in the fall, and noted it further demonstrates the government has "room to move" and that any budget cuts won't need to be draconian.
But when and where the cuts will be found remains a burning question. The budget won't include detailed information on possible cuts, he said, adding departments and ministers will be left to announce them in the coming months following the fiscal blueprint.
On the housing market, Flaherty noted there's "a divergence of views" among the economists, as some expressed more concern than others.
Avery Shenfeld, chief econo-mist with CIBC World Markets, echoed some of Flaherty's worries and said that while there are signs the housing market is cooling, there's still some cause for concern.
"There's a general feeling that more than just the condo market, the Canadian housing market, is starting to get a little bit overdone in terms of price momentum," Shenfeld said.
He noted the Canadian economy in 2012 is likely to expand a few decimal points more than the 2.1% growth in real gross domestic product that was predicted in November's fall economic update.
The federal government bases its budget and economic projections on the average forecast of private-sector economists it regularly consults. The economists said the most recent GDP figures have just come in so they're waiting a few more days before updating the forecasts that will be used in the budget.
Derek Burleton, deputy chief economist with TD Bank Financial Group, said he also is worried about the Canadian housing market and would like the government to consider reducing the maximum amortization period down to the traditional 25 years from the current 30 years.
Increasing the minimum down payment to 10% from the current 5% is another option, he said, but one that must be carefully considered.
