Sask. can expect 2% growth
Low oil prices will take their toll on the Saskatchewan economy in 2015, but potash and agriculture will help boost the province’s economic growth by slightly better than two per cent this year and next, according to the latest economic forecast by Royal Bank.
On Thursday, RBC lowered its outlook for Saskatchewan’s real gross domestic product (GDP) growth to 2.1 per cent in 2015 and 2016, down from 2.8 per cent in both 2015 and 2016 that Canada’s largest bank forecasted in December.
But those forecasted growth rates are nearly double the province’s tepid 1.1 per cent GDP growth in 2014 and better than projected output of Canada’s other major energy producing provinces, Alberta (0.6 per cent) and Newfoundland and Labrador (0.8 per cent) in 2015.
Paul Ferley, assistant chief economist with RBC Economics, said the bank indicated in February that Saskatchewan would be feeling the impact of the 55 per cent drop in oil prices by reducing the province’s economic forecast to 2.2 per cent GDP growth in 2015 and 2.1 per cent in 2016.
“The marginal downward revision to Saskatchewan GDP this year reflects slightly greater caution about investment spending in the energy sector, with anecdotal reports of capital expenditures nationally being delayed, and in some cases cut outright,’’ the report said.
Fortunately, the province has seen strong production gains in the potash mining sector, while agriculture is expected to rebound from a large drop in production in 2014 following the bumper harvest of 2013.
“Agriculture has always been a big swing factor, but so is potash,’’ Ferley said. “You can’t take your eye off those two sectors.’’
Potash production is expected to remain strong in 2015 after increasing by 30 per cent in the fourth quarter, following a flat third quarter and reduced production in the first half.
“Saskatchewan potash producers had cut back on output at the start of 2014 because of rising overseas production, as producers attempted to gain a greater share of the global market. However, these external pressures eased as the year progressed,’’ the report said.
RBC says that these supportive factors for the potash sector should continue this year and next and be further enhanced by a weakening Canadian dollar.
A projected rebound in agriculture to four per cent in 2015, after an estimated 13 per cent drop in 2014, is also expected help moderate slow growth in the energy sector. “(Agriculture is) not going to be the drag on growth that it was (in 2014), so that will contribute to the bounce-back in activity, assuming we get normal conditions,’’ Ferley said
While low oil prices will certainly slow economic activity in Saskatchewan in 2015, the province should fare better than the other energy-producing provinces.
“We cut growth in both Newfoundland and Alberta to below one per cent, but if Saskatchewan can get a bounce in agriculture and potash, we have to lower the growth (forecast), but not as aggressively as the other two key oil-producing provinces.”