Dimming outlook for potash to slow Saskatchewan's economic growth: RBC
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
Craig Wright, RBC Economics Research, 416 974-7457 Paul Ferley, RBC Economics
Research, 416 974-7231 Elyse Lalonde, Communications, RBC Capital Markets, 416
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-0- Sep/17/2013 09:00 GMT
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