TORONTO, Sept. 17, 2013 /CNW/ - Saskatchewan's economy is expected to
slow into 2014 due to significant changes in the potash sector,
according to the latest RBC Economics Provincial Outlook released today. A downward revision to the outlook for potash
production prompted RBC to lower its forecast for Saskatchewan's real
GDP growth in 2013 and 2014 to 2.7 per cent for both years (down from
2.9 per cent and 3.7 per cent respectively).
Up to mid-2013, Saskatchewan's potash production had been rising roughly
13 per cent following a number of purchase agreements with various
overseas customers in late 2012 and early this year, RBC says. However,
in July, a major overseas producer, OAO Uralkali, announced their
intention to sharply increase potash production with the objective of
capturing a greater share of the global potash market.
"The key question mark hanging over the outlook for Saskatchewan is the
near-term direction for production of, and investment in, potash in the
province in the wake of these developments," said Craig Wright, senior
vice-president and chief economist, RBC. "There is still considerable
uncertainty around the response by potash producers in the province;
however, we have assumed a sharp cutback in provincial potash
production relative to the first part of 2013, resulting in much slower
production growth in 2013 and 2014 of 6.5 per cent and 4.5 per cent,
respectively."
The slowdown in potash production translates to mining sector output
this year and next being largely halved relative to the 5.0 per cent
gains projected for both years in the June edition of the Provincial
Outlook.
RBC notes that increased potash production overseas and an anticipated
drop in potash prices also present a clear risk of capital spending
cutbacks in the sector for Saskatchewan. Tempering these concerns, BHP
Billiton indicated it plans to spend an additional $2.6 billion - on
top of the $1.2 billion already spent - in work for its Jansen potash
mine over the next couple of years. RBC conservatively expects overall
construction spending to increase by 1.5 per cent this year and 3 per
cent in 2014.
"Our projection for modest construction spending largely reflects the
heightened uncertainty in the global potash market and the expected
weakness in capital spending based on the results of Statistics
Canada's survey of business investment intentions conducted earlier
this year," added Wright.
Offsetting these negative factors impacting the provincial economy, RBC
expects historically high oil prices to support production and
investment in the energy sector in the period ahead. As well,
preliminary agricultural production estimates for 2013 suggest a 16 per
cent increase in output of Saskatchewan's three major crops: wheat,
barley and canola.
The RBC Economics Provincial Outlook assesses the provinces according to
economic growth, employment growth, unemployment rates, retail sales,
housing starts and consumer price indices. The full report and
provincial details are available online as of 8 a.m. ET today at rbc.com/economics/economic-reports/provincial-economic-forecasts.html.
SOURCE RBC
Craig Wright, RBC Economics Research, 416 974-7457
Paul Ferley, RBC Economics Research, 416 974-7231
Elyse Lalonde, Communications, RBC Capital Markets, 416 842-5635
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