The Organization for Economic Co-operation and Development slashed its growth estimate for Canada this year as it trimmed its outlook for the global economy.

In its latest interim economic outlook, the OECD says weak trade growth and financial distortions are exacerbating slow global economic growth.

The think-tank says it expects the Canadian economy to grow by 1.2 per cent this year, half a percentage point lower than its outlook in June.

Growth next year is expected to be 2.1 per cent, down from its earlier estimate of 2.2 per cent.

The OECD report said that prolonged low interest rates have also contributed to rising real estate prices, with house prices growing at a similar or higher pace than prior to the financial crisis of 2008 in a number of countries, including Canada.

"Over recent years, real house prices have been growing at a similar or higher pace than prior to the crisis in a number of countries, including Canada, the United Kingdom and the United States," the OECD said in its update of its main econimic forecasts. 

The OECD's chart on inflating home prices in the U.S., Germany, U.K. and Canada since 2002:

"What we’re afraid of in the case of Canada – and clearly when you look at the figures – real estate prices have been growing quite strongly in certain areas such as Vancovuer and Toronto. At the same, household indebtedness is high and growing. These are things of course to worry about," Christian Daude, OECD senior economist, said in an interview with BNN. 

Daude added that the Canadian government is moving in the "right direction" with housing intervation, and that using monetary policy to cool Canada's housing market would be "too blunt and probably have lots of negative consequences for the economy."

"The right thing to do to cool the housing market is through regulations ... in a smooth way without affecting too much of the demand side of the economy, where there’s still a lot of slack," Daude said. 

The OECD also warned on Wednesday that global economic growth will flounder this year and next at rates not seen since the financial crisis as the march of globalization grinds to a halt.

Long a motor for the global economy, trade growth is set to lag growth in the broader world economy this year, the OECD said.

"This is well below past norms and implies that globalization as measured by trade intensity may have stalled," the Paris-based organization said.

As a result, the OECD estimated the global economy would muster growth of only 2.9 per cent this year, down from a forecast of 3.0 per cent in its last estimates in June and the lowest rate since the global financial crisis of 2008-2009.

The OECD said many global supply chains that add economic value at each stage and are often rooted in China and other east Asian countries were unravelling as China sought to wean its economy off of exports for growth and some firms brought back production to their home countries.

A growing backlash against trade liberalization as well as recessions in some big commodity-producing countries were adding to the trade slowdown, which the OECD warned could erode already flagging productivity and thus ultimately living standards.

"If we could get back on track with the kind of trade growth that we had in the 1990s and 2000s, we would be able to return to productivity growth rates prior to the financial crisis," OECD chief economist Catherine Mann told Reuters in an interview.

"Productivity has basically fallen by half since the financial crisis and that is a recipe for breaking promises to all of our citizens," she said.

BROKEN PROMISES

A backlash against trade has surged onto the political agenda of several countries facing elections in the coming months.

U.S. presidential candidate Donald Trump has campaigned hard to roll back trade liberalization while Germany and other European countries saw tens of thousands of people protest on Saturday against planned free trade deals with the United States and Canada.

Mann said that while voters could easily see losses from increased trade in the form of job cuts, the gains - lower prices for goods and more choice - were less visible.

With global growth seen picking up to only 3.2 per cent next year - trimmed from 3.3 per cent in June, Mann warned that would be too little to generate the jobs that youths expected and to respect pension promises to the elderly.

"This is not a pretty picture for global growth," Mann said.

"Across the board a three per cent growth rate is insufficient to keep promises to citizens."

The OECD said that growth in the United States was in particular looking weaker than only a few months ago, forecasting growth in the world's biggest economy at 1.4 per cent this year, down from a forecast of 1.8 per cent in June.

Although that would be the weakest growth since the financial crisis in 2009 and weaker than the euro zone's 1.5 per cent, the OECD said that the U.S. Federal Reserve should go ahead with an interest rate hike of a quarter percentage point.

That would help keep asset prices from galloping ahead of growth in the real economy, potentially creating bubbles, Mann said as Fed policymakers prepared for a rate decision on Wednesday.

Next year, the OECD sees U.S. growth picking up to 2.1 per cent, down from 2.2 per cent in its last forecasts from June.

The OECD estimated the British economy would suffer less than initially feared as a result of a the vote in June to leave the European Union.

It forecast British growth of 1.8 per cent, up from 1.7 per cent in June. However, it cut the outlook for 2017 by half to only 1.0 per cent as uncertainty about Britain's trading relationship with the European Union lingered.

With files from BNN, The Canadian Press