TORONTO -- The Organization for Economic Co-operation and Development is warning markets have run away from fundamentals.
"The positive assessment reflected in market valuations appears disconnected from real economy prospects," the OECD wrote in its latest economic outlook released Tuesday, going on to caution "the financial market response to the increase in rates ... may not be smooth."
Also according to OECD estimates, Canada's economy is projected to grow this year by 2.4 per cent, equalling what's now expected in the United States and ahead of the other Group of Seven countries.
The Paris-based organization had previously said Canada's economy was expected to rise by 2.1 per cent this year -- better than last year but still modest compared with past economic recoveries from downturns.
The OECD also raised its estimates for several of the world's biggest economies, including the United States and China, but kept its world economic estimate unchanged at 3.3 per cent -- just slightly better than last year's weak 3.0 per cent.
"Confidence has improved, but consumption, investment, trade and productivity are far from strong, with growth slow by past norms and higher inequality," the OECD said.
The think-tank said Canada's economy will be supported this year by export growth, a better market for commodities and government spending initiatives.
RAISING A RED FLAG ON CANADIAN HOUSING
However, it again raised a red flag about the rapid increase in house prices in Canada and other countries including Australia, Sweden and the United Kingdom.
"As past experience has shown, a rapid rise of house prices can be a precursor of an economic downturn," it said.
The OECD works with the governments of 35 member countries, including Canada, and major non-member countries including China, India and Brazil to collect data and analyze economic trends around the world.
The modest pick-up in global growth in 2017-18 reflects the effect of ongoing and projected fiscal initiatives, notably in China and the United States, and initiatives in other economies such as Canada, the report says.
"These are expected to catalyse private economic activity and push up global demand."
"Exiting the low-growth trap depends on the joint impact of macroeconomic, structural and trade policy choices, as well as on concerted and effective implementation of existing initiatives."
The OECD report said the U.S. and Canada are projected to lead the Group of Seven countries in economic growth this year, with the next highest G7 country being Germany at 1.8 per cent GDP growth.
Next year, the U.S. economy is projected to grow by 2.8 per cent and Canada's is expected to expand by 2.2 per cent, ahead of the other G7 countries. Global economic growth for 2018 is forecast to be 3.6 per cent.
In its previous report issued in November, the OECD estimated Canada's economic growth for 2016 would be 1.2 per cent, but that was upgraded Tuesday to 1.4 per cent, in line with what Statistics Canada reported last week.
-- With files from BNN