Sask. growth slows in 2014, expected to rebound in 2015

Saskatchewan’s economy will slow to 1.0 per cent growth this year, down from a healthy 4.8 per cent in 2013, but rebound to 2.7 per cent growth next year, according to the latest economic forecast by BMO Economics.

A fall in crop production is the major cause of the precipitous drop in economic output, as measured by real gross domestic product (GDP), BMO said.

“The farm sector enjoyed a bumper crop in 2013, with a near 40 per cent jump in crop production to a record 38.4 million tonnes,” said Robert Kavcic, senior economist with BMO Capital Markets.

“This year, however, production is expected to fall sharply back toward more normal levels, with recent estimates pegging wheat and canola down more than 20 per cent for the year. That could cut almost 1.5 percentage points from real GDP growth.”

In addition to the volatility in agricultural production, the province is also dependent on the oil and gas industry and mining sector for a significant portion of its economic activity and government revenues.

“The oil sector continues to expand, accounting for nearly 20 per cent of the province’s real GDP with direct royalties alone accounting for 13 per cent of total government revenues,” Kavcic said. “This is good news given uncertainty and softening activity in the potash sector, which faces weaker demand in China and India, as well as a shift to a lower pricing environment after the breakdown of a major joint venture between Uralkali of Russia and Belaruskali of Belarus.”

But Kavcic added that “downside risks have opened up with the recent slide in oil prices,” especially for oil and gas-rich Alberta, but all provinces with exposure to oil prices. “Pound for pound, Saskatchewan would likely be hit somewhat less hard ... while Newfoundland and Labrador will face the steepest revision.”

The labour market continues to perform well, and the province is making a case to be crowned the new Canadian leader. “Employment has popped 3.3 per cent in the past year — leading the country,” said Kavcic. “The jobless rate fell back down to 3.5 per cent in September — lowest in Canada — and the employment rate hit a record high at just under 68 per cent, second among all the provinces. Median hourly wages trails only Alberta, but its growth is actually running faster.”

Population growth remains strong in the province — close to the fastest pace in 60 years — at 1.7 per cent year over year in the third quarter of 2014. “Saskatchewan continues to see steady, albeit modest, inward interprovincial migration,” Kavcic said. “That continues to support the demand side of the housing market — sales are currently near record levels — but ample supply has softened the pricing environment.”