Provincial economy to slow, RBC says

With Files From The Canadian Press, March 20, 2014 - A drop in agricultural output will slow down the provincial economy this year, according to the latest RBC Economics Provincial Outlook. RBC forecasts Saskatchewan's real GDP growth will be 2.0 per cent in 2014, down from an estimated 3.9 per cent in 2013.

"We expect Saskatchewan's economy to feel the impact of a marked slowing in agricultural production in 2014 - after an increase of more than 15 per cent in 2013 we anticipate a 6.0 per cent decline in agricultural output," said Craig Wright, senior vice-president and chief economist, RBC. "Next year we should see a pickup with output at 2.0 per cent. This will contribute to a bounceback in real GDP growth of 2.7 per cent."

Favourable weather conditions during the 2013 growing season led to above-average grain and oilseed production and RBC says a return to more normal conditions in 2014 should slow production to more sustainable levels going forward.

RBC also forecasts a slowdown in potash production, with provincial production this year to be about half of the 10 per cent rate achieved in 2013. The downturn is based on the world's largest potash producer, Uralkali, intending to increase production in an attempt to grab a greater share of the global market.

"The prospect of a jump in potash production overseas is worrisome for Saskatchewan's producers in that it will have an attendant cooling effect on overall activity in the province," said Wright. "That said, the situation is likely to remain fluid and continues to be a bit of a wild card for Saskatchewan's economic outlook. We see both upside and downside risks."

Non-residential investment in 2014 is expected to decline 1.0 per cent after dropping about 1.5 per cent in 2013. The report said any decline in investment spending in 2014 will be partially deferred to 2015; real GDP in the province was upwardly revised for that year.

Nationally RBC is predicting relatively strong economic growth for Canada this year and next, although it says the loonie is about to fall even further.

Economic growth should hit 2.5 per cent this year, despite a stuttering start to 2014 caused by the winter deep freeze, with growth picking up to 2.7 per cent in 2015. That's slightly stronger than the Bank of Canada's call for 2.5 per cent growth in both years and above many other private sector forecasts, which predict an even softer 2014. As for the currency, RBC says the loonie hasn't ended its descent and expects it will trade at about 87 cents US by the end of this year and dip to 85 cents by the end of 2015. The dollar closed at 88.93 cents US, down 0.86 of a cent, and the lowest it has been this year. The loonie last closed above parity with the greenback in early February 2013.

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