The projected strengthening of Canada’s economic growth over the next two years could be thrown off course by a potentially “disorderly” housing market correction, especially in the Vancouver and Toronto real estate markets, a new report from the Organisation for Economic Co-operation and Development warns.

The Paris-based OECD projects that Canada’s economy will increase to 2.3 per cent in 2018, from 1.2 per cent in 2016. But, while non-energy exports, business investments and an increase in private consumption are expected to lead that growth, the OECD says a major housing market correction is the “main downside risk” to those projections.

The “over-valued” Toronto and Vancouver markets are the most likely targets, the report says.

“This could result from an external shock that results in higher mortgage rates and/or unemployment, making it difficult for some financially stretched households to service their mortgage commitments,” the OECD says.

Such a correction would reduce residential investments, private consumption and, “in an extreme case could threaten financial stability,” it says.

The good news, according to the OECD, is that Canada’s economy is growing steadily outside the oil and gas sector. The report says that individual spending is “robust,” thanks partly to the introduction of the income-tested, non –taxable Canada Child Benefit in July. The report also notes continued investments in real estate developments, booming house prices in Ontario and British Columbia and an upturn in exports and business investments.

Overall, the OECD offered a positive world economic outlook, buoyed by activity and planned stimulus efforts in the United States and China.

The OECD raised its forecasts for global growth to 3.3 per cent for next year, up from 3.2 per cent in its previous outlook.

With files from The Associated Press