OTTAWA -- The external risks facing the Canadian economy are more acute than in the recent past, the IMF said Monday in an that has focused on the country's housing market in recent years.
Cheng Hoon Lim, the IMF's assistant director, Western Hemisphere Department, said economic anxiety is high with concerns about the future of the NAFTA talks and developments in international corporate taxation including the recent U.S. corporate tax cuts.
"The impact of lower corporate tax rates in the U.S. could make Canada a less attractive destination for investment," she said.
The IMF report recommended it was time for Canada to examine its corporate tax in the face of the changes in the U.S.
Lim also said failure to reach a NAFTA agreement within a reasonable time frame could hurt investment and growth for an extended period.
The IMF report estimated failure to reach a new NAFTA agreement could reduce long-run Canadian real gross domestic product by 0.4 per cent relative to its baseline forecast. That amount could increase if non-tariff trade costs increase, the report noted.
The IMF said it expects the Canadian economy, which grew by three per cent last year, to slow to growth of 2.1 per cent in 2018 and 2.0 per cent in 2019.
In its report, the IMF noted the housing market continues to remain a key domestic risk for the economy. But, it said that the vulnerability has moderated somewhat, as the housing market has shown signs of cooling down.
"It will remain a vulnerability for some time given the large stock of household debt," Lim said.
The Canadian government said it continues to monitor the issues raised by the IMF report to ensure that its actions continue to support growth and contribute to a strong middle class.
"Our government's approach of investing in people and in the economy is yielding positive results, which are being recognized around the world," Finance Minister Bill Morneau said in statement.
Last week, the United States ended an exemption from steel and aluminum tariffs that had been granted to Canada, Mexico and the European Union.
Canada responded by announcing plans for tariffs on some $16.6 billion of U.S. goods including steel and aluminum, but also a wide range of consumer goods.
The IMF report came ahead of the Bank of Canada's latest financial system review report that is expected Thursday.
In its November report, the Canadian central bank said high levels of household indebtedness and housing market imbalances remain the most important vulnerabilities.
