Canadian growth to accelerate but U.S. well-being still key: IMF

The Canadian economy is expected to gather steam next year as demand from the U.S. spurs exports and investment, the International Monetary Fund said Wednesday.

The IMF pegs Canadian growth at 2.25 per cent next year following modest growth of 1.6 per cent this year as exports and business investment "disappointed."

Activity next year will benefit from stronger external demand, although the chief risk to its outlook is how the U.S. economy fares. The fund also highlighted elevated household debt levels and high valuations in the housing market as concerns, noting that Canada's debt-to-income ratio reached a new record in the middle of this year...

The IMF estimates overvaluation in Canada's housing market, nationally, at between 5 per cent and 10 per cent, down a little from its views last year (when it figured the market was between 5 and 15-per-cent overvalued). It doesn't see a bubble bursting in the housing market, but rather a gradual cooling.

Unlike the OECD, which controversially this month advised interest rates hikes beginning next year, the IMF sees little need for imminently higher borrowing costs. It expects interest rates to start rising in early 2015, in line with what many economists predict...

The fund not alone in predicting a pickup next year. The Conference Board of Canada said Wednesday stronger exports quicken growth to the 2.5-per-cent in 2014 after 1.8 per cent expansion this year...

The IMF expects a stronger U.S. economy will boost confidence and investment in Canada, which in turn will offset the effect of slower domestic demand as construction activity cools and households whittle away debt levels...

This has been excerpted from the 27 November 2013 article by the Globe and Mail, and is available in its entirety at: http://www.theglobeandmail.com/report-on-business/economy/tenuous-european-economy-a-significant-risk-to-canadian-growth-conference-board/article15625943/ (subscription may be required)