The IMF's latest report on Canada, issued Wednesday, paints a picture of an economy that is doing reasonably well in the face of global headwinds, but also one that is vulnerable to external shocks.
It notes the recovery's cruising speed has slowed this year and will likely underperform next year to slightly below two per cent.
The report's good news is that it expects the pace to pick up to slightly above potential in the second half of 2013 and to continue in 2014 with an advance of about 2.25 per cent.
That is in line with many Canadian private sector economists, including the CIBC, which on Wednesday forecast Canadian growth next year at a tepid 1.7 per cent, followed by 2.5 per cent in 2014.
The projections are what economists call "baseline scenarios," which means the most likely to come true. Normally, the baseline scenarios are evenly bracketed by both downside and upside risks.
The trouble in this environment, says the IMF, is that the risks are all "tilted to the downside," citing European's ongoing problems and the still real changes of a budget crisis in the United States.
"In this context, the main challenge for Canada's policy-makers is to support growth in the short term while reducing the vulnerabilities that may arise from external shocks and domestic imbalances," the IMF says.
"The beginning of the monetary tightening cycle should be delayed until growth strengthens again," adding that likely will come only late in 2013. But it could go the other way, the IMF warns.
"On the other hand, there is some space for further monetary easing if the economy were to weaken significantly."
CIBC chief economist Avery Shenfeld said in his view the Canadian central bank is unlikely to act until 2014, and then only with caution, nudging rates up between half and three-quarters of a point.
Bank of Canada governor Mark Carney has kept the overnight rate target at one per cent since September 2010, which has led to some of the lowest borrowing costs in memory. The bank has maintained a tightening bias — a signal of future rate hikes — most of the past year, but has not acted on it.
The IMF has similar advice for Canada's governments. It says they should keep on their deficit reducing track, but be prepared to reverse course.
"If the economy weakened further, the federal and some provincial governments should allow the full operation of automatic stabilizers," such as employment insurance support, it recommends. "In the event of a large adverse shock, the federal authorities could also consider a new temporary stimulus package."
Both the IMF and the CIBC diagnose the economy in much the same way. Global weakness and the strong loonie continue to weigh down on one of the country's most important sectors, exporters.
Meanwhile, former streams of growth — consumer spending and housing — have run their course after several years of boom.
As a result, Canada is a hostage to outside factors, Shenfeld says.
"The absence of a helping hand from abroad will leave Canada exposed," he explained.
"Having earlier tapped fiscal stimulus and a housing boom to shelter the economy from sluggishness abroad, the country's ability to set its own course is now much more limited."
The IMF report also warns authorities to be vigilant about high household debt, including restricting the availability of mortgage borrowing, and warned of possible damage to Canada's banking sector, insurance companies and pension system in the event of another global financial crisis.
It notes that Canada's real estate boom is likely over, as recent data on housing starts, sales and prices suggest.
A separate report issued Wednesday by National Bank and the Teranet land transfer registry added to the evidence of a weakening in Canada's residential real estate sector.
Canadian housing prices fell in November compared with October, according to the Teranet-National Bank composite national index — only the fourth time in 13 years that there has been a decline between the two months.
The composite index covering 11 major urban centres stood at 154.02 last month, down 0.4 per cent from October, as 10 of 11 local markets tracked by the Teranet land registry system dropped. Only Calgary showed an increase in November.
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