Canada's economy will strengthen in 2013, allowing for interest rates to rise from a near record low, the International Monetary Fund (IMF) said Wednesday.
GDP growth of just below two percent is expected next year, accelerating to around 2.25 percent in 2014, according to the IMF's forecast.
Canada's economy hit the brakes in the third quarter of 2012, falling from the 1.7 percent annual pace maintained during the first two quarters of the year to 0.6 percent, as business investments and exports slumped.
If the fiscal cliff crisis in the United States is resolved, Canada can expect to see stronger exports and business investment next year, it said.
If not, the impact on Canada of the year-end combination of tax hikes and huge spending cuts, which analysts fear could spark a new US recession and damage the fragile global economic recovery, would be about three-quarters of the effect on the US economy, according to the IMF.
Otherwise, Canada's housing sector and consumer spending are expected to fall gradually over the coming months.
Canada "is unlikely to suffer from a house boom-and-bust episode similar to the one experienced by the United States," the IMF said.
Ottawa has already tightened the rules for government-backed mortgage insurance and lending mortgage standards to try to stem soaring real estate prices and a possible bubble.
But the IMF said higher down payment requirements for first-time buyers and other measures may still be required if Canadian household debt continues to rise.
The agency said interest rates should start rising in late 2013, when growth is expected to accelerate.
Canada's central bank has held its key lending rate at a near historic low of one percent since September 2010. The rate was even lower, at 0.25 percent, at the height of the economic crisis.