Steam rises from a stack at a factory in Hamilton. (Adrian Wyld/Canadian Press)

Policy-makers should be ready to take further action if Canada's "muted" recovery falters, the International Monetary Fund (IMF) said Wednesday.

The IMF generally praised Canada's fiscal standing and solid banking system and said the country is faring better than most as it recovers from the global downturn.

But it said authorities should be ready to step in, if necessary, with policy measures to keep the country's growth on track.

"It's important to remain vigilant to any risks that could emerge," said Charles Kramer, the IMF's Canadian mission chief, in a conference call.

"After our discussions in Ottawa and Toronto we have confidence that the authorities are very much on the same page with respect to that," he said.

The IMF forecasts 2.3 per cent real growth in the Canadian economy in 2011 — a slowdown from 2010's 3.0 per cent growth.

Risks elevated

But domestic and global risks to Canada's recovery are elevated and could curtail growth, the Washington-based agency said in its year-end look at the Canadian economy.

"Growth is expected to be muted in the second half of 2010 and in 2011 as household debt has run up to high levels, housing markets are cooling and fiscal stimulus is waning," it said.

The record high level of personal debt is the main domestic risk to future GDP growth in Canada, in its view.

The average Canadian's debt is 143.6 per cent of annual disposable income — not much better than the 148.6 per cent level among American consumers.

Bank of Canada governor Mark Carney and Finance Minister Jim Flaherty have both raised similar concerns about high household debt levels.

The housing market bears watching, the IMF said, noting that one of its background studies found that home prices in Ontario and British Columbia were nine to 14 per cent higher than its economic modelling would suggest, based on historical averages. Although a housing price correction is possible, a collapse is not likely, in the IMF's view.

Outside Canada, the biggest downside risk to Canada's economy comes from a weaker U.S. outlook and worsening global financial conditions.

The IMF also praised plans by federal and provincial governments to move toward balanced budgets and said Ottawa's recent move to extend the deadline for stimulus spending by seven months to October 2011 was welcome, given the muted nature of the recovery.

Keeping rising health-care costs in check "will pose challenges" for policy makers in the long term, it added.

With files from The Canadian Press