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International Monetary Fund. Western Hemisphere Dept.
This 2017 Article IV Consultation highlights that Canadian economy has regained momentum, supported by the authorities’ pro-active growth strategy, but complex adjustments are still at play. Although personal consumption is robust, business investment remains weak, nonenergy exports have underperformed, and housing market imbalances have risen. Externally, the global outlook has improved, but uncertainty surrounding global trade and risks of economic fragmentation may negatively affect the durability of the Canadian recovery. A strong United States economy, expansionary fiscal and monetary policy, and stable oil prices are expected to lift real GDP growth to 2.5 percent in 2017 and 1.9 percent in 2018. Residential construction is expected to expand at a more moderate pace, reflecting tighter macroprudential measures.
Mr. Troy D Matheson
Housing market imbalances are a key source of systemic risk and can adversely affect housing affordability. This paper utilizes a stylized model of the Canadian economy that includes policymakers with differing objectives—macroeconomic stability, financial stability, and housing affordability. Not surprisingly, when faced with multiple objectives, deploying more policy instruments can lead to better outcomes. The results show that macroprudential policy can be more effective than policies based on adjusting propertytransfer taxes because property-tax policy entails excessive volatility in tax rates. They also show that if property-transfer taxes are used as a policy instrument, taxes targeted at a broader-set of homebuyers can be more effective than measures targeted at a smaller subset of homebuyers, such as nonresident homebuyers.
International Monetary Fund. Monetary and Capital Markets Department

. The BOC has conducted systemic risk surveillance in the areas of household indebtedness, housing market imbalances, bank solvency and liquidity, nonbank financial intermediation, financial markets, and financial system interconnectedness. 8 Moreover, the BOC has carried out the top-down macro stress tests for banks, initially developing the Macrofinancial Risk Assessment Framework ( MFRAF ) that analyzes solvency-liquidity spillovers and contagion effects, and more recently developing a more full-fledged solvency module that analyzes pre-loss income and credit loss

International Monetary Fund. Western Hemisphere Dept.

STAFF REPORT FOR THE 2017 ARTICLE IV CONSULTATION June 21, 2017 Key Issues Context . The economy has regained momentum, supported by the authorities’ pro-active growth strategy, but complex adjustments are still at play. While personal consumption is robust, business investment remains weak, non-energy exports have underperformed, and housing market imbalances have risen. Outside of Canada, the global outlook has improved with stronger manufacturing activity, but the threat of protectionism and economic fragmentation hangs over global trade. Collectively

International Monetary Fund. Western Hemisphere Dept.

How Advanced Economies Tackle Housing Market Imbalances: Lessons for Canada 1 A. Introduction 1. Housing market imbalances, fostered by the low interest rate environment and abundant liquidity, have been a concern in several advanced countries in recent years . Strong population growth in the major urban areas has also been a factor in some countries. Rapidly rising housing prices usually have been coupled with rising household indebtedness ( Figure 1 ). High household debt raises the vulnerability of the financial system to a sharp house price

International Monetary Fund. Western Hemisphere Dept.

On July 5, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation 1 with Canada. The 2017 Article IV consultation centered on policies to secure stronger, inclusive, and self-sustaining growth, while preventing the further build-up of housing market imbalances. The economy has regained momentum, supported by the authorities’ pro-active growth strategy, but complex adjustments are still at play. While personal consumption is robust, business investment remains weak, non-energy exports have underperformed, and

International Monetary Fund. Western Hemisphere Dept.

Canadian authorities for their sound management of the economy and progress in reducing financial sector vulnerabilities. They noted that growth has slowed to a more sustainable level and inflation is well contained. The economic outlook is nevertheless susceptible to risks, including from housing market imbalances, high household debt, and continued trade tensions. Going forward, it would be important to rebuild policy buffers, preserve financial stability, and boost productivity and competitiveness. Directors agreed that fiscal consolidation should remain gradual and

International Monetary Fund. Monetary and Capital Markets Department

with the United States. Macrofinancial vulnerabilities—notably, elevated household indebtedness and housing market imbalances—remain substantial, posing financial stability concerns . During the decades-long credit upcycle, low interest rates and low capital charges for mortgage lending, together with policies promoting housing affordability, have fueled borrowing to finance home purchases in the face of rapidly rising house prices. Downside risk to house prices in the medium term are sizeable given existing overvaluation, and Canada-specific housing finance