Canada's housing market has been sliding since the summer when Finance Minister Jim Flaherty moved to tighten borrowing standards, but prices have not fallen as sharply as sales, starts and building permits. (Reuters)

Bank of Canada governor Mark Carney says Canada's economy is in the midst of what he believes will be a successful transition from over-dependence on borrowing to production that will include a softer housing market but stronger exports.

Canada's once-hot housing market has already begun to cool as Canadians temper their appetite for debt, Carney said in a television interview broadcast Sunday, adding the market likely has a couple of more years of adjustment.

But while that will dampen growth, Carney said he believes business investment and the export sector will pick up the slack — and that the end result will be a healthier Canadian economy.

'Real wealth is … gained through hard work, it's not through some magical asset inflation.'—Mark Carney, Bank of Canada

"I think what we've done successfully, time will tell, what we've done successfully is we've pivoted from stimulating household demand — housing market and household borrowing for consumption — kept employment up, and we've pivoted to focus on investment and exports," he told the CTV Question Period program.

"That's a difficult rebalancing, but what we're seeing without question is a very constructive evolution of Canadians' attitude towards debt and towards the housing market and it is moving towards a much more sustainable equilibrium," said Carney, who is about to leave his job to take over the helm of the Bank of England this summer.

The hopeful outlook came a day after conclusion of a summit of the world's leading economies in Moscow in which the G20 nations agreed to refrain from manipulating their currencies in order to gain an unfair advantage in trade.

The pledge and that it be heeded is critical to Canada since policy-makers say the country will need to depend on a rebound in exports to pre-recession levels to sustain the recovery going forward.

Housing sales, starts down

Canada's housing market has been on a downward track since the summer when Finance Minister Jim Flaherty moved to tighten borrowing standards, although prices have not fallen as sharply as sales, starts and building permits.

Carney said the policies, along with his and Flaherty's hectoring about the perils of borrowing and the debt fatigue felt by many households, are working to restrain borrowing and the housing market and putting the economy on a more sustainable path. It was not normal and not healthy for home prices to appreciate as steeply as they have the past few years, he said.

"Real wealth is built through innovation, and it's gained through hard work, it's not through some magical asset inflation," he said.

"We've seen the adjustment in the housing market, we think there's a bit more to come over the next couple of years, but I think Canadians have listened to the message and they are adjusting."

Not all economists are as sanguine as Carney on the transition period.

Pessimistic economic growth forecasts

The Bank of Canada is projecting economic growth to average about two per cent this year, but some private sector analysts believe that may be overly rosy. The consensus has fallen to about 1.8 per cent and at the extreme, some forecast growth will average only one per cent in 2013, the weakest by far since the 2008-09 slump.

December's disappointing 3.1 per cent contraction in manufacturing sales, reported Friday, along with the previously released decline in exports during the same month, suggests that the "pivot" has been far from smooth, nor does it appear certain.

"Suffice it to say, the jury is very much out on whether we have in fact pivoted to exports and investment," said Bank of Montreal economist Doug Porter, noting that exports are down almost 10 per cent from a year ago, and that capital spending has also softened.

"In this environment, it seems the risks to growth are almost uniformly on the downside for 2013, unfortunately," Porter added.

Economists agree that future looking signals are more positive than what the rear-view mirror is reflecting.

The United States, Canada's pre-eminent export market, appears set for a stronger year after getting by its fiscal cliff crisis, particularly in consumer spending and housing, which should help Canadian shipments of autos and parts and wood products.

As well, after a drop in the second half of 2012, emerging markets from China to Brazil have begun to stabilize and in some cases expanding their pace of growth.

During a conference call Saturday at the conclusion of the G20 meeting, Canada's finance minister also struck a positive tone.

Flaherty said he was pleased with the approach of leaders to seek a balance between efforts to rein spending and promoting growth in their stagnant economies.

"Too often this discussion has led to a false dichotomy between fiscal discipline and a pro-growth agenda. The bottom line is we need to strike the right balance," he said from Moscow.

He cautioned, however, that it will take persistent effort to stabilize the global economy.