Canada's economy held back by slow global growth

The Organization for Economic Cooperation and Development says weak global demand is keeping Canada's economy in the slow lane.

The Paris-based group said in a report Tuesday it expects Canada's economy to grow by only 1.5 per cent in the last three months of the year.

For 2013 as a whole, the OECD expects Canada's economy to expand by 1.8 per cent and increase to 2.4 per cent in 2014.

All those figures are under what the Bank of Canada and officials at the Department of Finance are projecting. Earlier this month, Finance Minister Jim Flaherty said he expects two per cent growth next year.

The OECD also cites poor productivity and Canada's housing market for having the potential to knock the economy to its knees — which could throw a wrench in Ottawa's plans to get back to balanced budgets as soon as possible.

"Continuing high household debt levels could lead to a sharp deceleration in household spending, while a sudden weakening of the housing market could have sizable negative spillover effects," the OECD says.

Should the risks materialize, or Canada be hit from an outside shock, policy-makers should respond by increasing government spending if necessary, it said.

As things stand, the organization said the Bank of Canada may need to start raising interest rates from near record lows by the latter half of 2013.

Two things the group says are working in Canada's favour are the booming natural resources sector and the ongoing turnaround in the United States, Canada's largest trading partner.

For the first time since 2007, economic growth in the United States is expected to surpass that of Canada this year.

But its outlook for Canada is still far stronger than for Europe, which is expected to remain in recession through most of 2013.