By Leah Schnurr
TORONTO Feb 24 Canada's housing market is at
risk of a meaningful correction, Nouriel Roubini said on Monday,
though the economist known as "Dr. Doom" for his often gloomy
forecasts said he was not predicting a crash.
Roubini also said the value of the Canadian dollar is
too strong, noting the challenge that poses to the manufacturing
sector, and suggested the Bank of Canada should use more
aggressive monetary policy to weaken the loonie.
Roubini, who is credited with predicting the collapse of the
housing market in the United States and the ensuing financial
crisis, pointed to a number of housing markets that are showing
signs of "frothiness, if not an outright bubble," including
Canada, the United Kingdom and parts of China.
While he highlighted the high level of household debt as an
area of concern in Canada, he acknowledged there are many
differences between Canada's housing market and the one that
collapsed south of the border, including the excessive use of
subprime mortgages in the United States and stronger banks in
"I'm not predicting a crash, but certainly a meaningful
correction could occur and that would be something that could of
course dampen the economy that is already growing moderately,"
said Roubini, chairman of Roubini Global Economics and an
economics professor at New York University's Stern School of
The Bank of Canada faces the same dilemma as other central
banks around the world, which is that policymakers are wary of
raising interest rates too soon before economic growth has set
in, Roubini said. However, low rates and extraordinarily
accommodative monetary policies may eventually lead to asset
bubbles, he said in a speech to a Toronto business group.
Roubini said that the Canadian economy overall was doing
"OK, not exceptional" and forecast growth of around 2.3 percent
to 2.4 percent this year, with a slightly higher pace next year.
"I would say if your currency was 10 percent weaker, that
would help manufacturing," said Roubini.
To achieve that, he suggested the Bank of Canada could
commit to keep rates low for longer or adopt an easing bias.
"It might not be conventional wisdom, but at the margin, I
would say, keeping your currency weaker right now, it's
Canadian Finance Minister Jim Flaherty shrugged off
Roubini's prescription for a weaker currency.
"I think he's talking about monetary policy and the role of
the Bank of Canada, and not fiscal policy. So I'm not going to
get into that. I'll leave it to the governor (of the central
bank)," Flaherty said in an interview with Reuters in Melbourne,
Asked if he would characterize the Canadian dollar as
overvalued, Flaherty said: "I wouldn't characterize it in any
way other than it's a market currency. The market decides where
the dollar sits."
In the wide-ranging interview, Flaherty also indicated
little immediate concern with the state of the housing market.
Canada's central bank has a mandate to target the inflation
rate and officials have said it is up to the market to set the
But the Canadian dollar has weakened since the Bank of
Canada took a more dovish shift in policy, leaving the door open
to a cut in interest rates.