In early December, the government issue a list of economic highlights for 2013: population growth, up 100,000 in six years; economic growth of 3.6 per cent, second-highest in Canada; unemployment rate of 3.6 per cent, lowest in Canada; employment up 17,000, “an all-time record;” and record crop production of 34.2 million tonnes (later increased to 38.4 million tonnes).
But recent economic forecasts have been more subdued. suggesting that the province’s economy may be due for a slowdown next year. Earlier this month, RBC downgraded Saskatchewan’s forecasted economic growth from 2.7 per cent to 2.1 per cent in 2014, which put us squarely in the middle of the pack among the provinces.
Part of that downgrade is just a return to a normal crop from the record harvest in 2013. But part of it is plummeting potash prices, plunging production and reduced capital spending.
Similarly, two commodity price reports this week pointed to weakness, not just in potash, but uranium, oil and agricultural commodities, like wheat and canola.
Oil prices are falling, thanks to widening differentials between western Canadian heavy oil and benchmark West Texas Intermediate, which are now pushing $40 US a barrel. Even Canadian light crude prices are $20 US a barrel lower than comparable U.S. crudes due to growing supplies of light oil production from North Dakota’s Bakken play and a chronic shortage of pipeline capacity.
Potash prices have fallen below $300 US per tonne, thanks to the collapse of the BPC cartel, while uranium prices are at a “low ebb” at $34.50 US per pound due to the fallout from the Fukushima tsunami in 2012 and the subsequent idling of 50 Japanese nuclear reactors.
Even agricultural commodity prices have been under pressure lately due to the “monster-sized crops” in the U.S. and Canada and are sitting nearly 12 per cent below levels one year ago.
Analysts forecast commodity prices “bottoming’’ in 2014 before returning to the “bull’’ market in 2015 and beyond.
The point is, Wall is right to be cautious about the province’s economic fortunes in 2014, despite the record performances posted in 2013. But that’s not Wall’s only problem.
He knows that the province’s fiscal position is far more tenuous than the rosy picture painted by Finance Minister Ken Krawetz in his midterm financial statement, which shows the province sitting on a $22.8-million surplus in the general revenue fund. This is the same general revenue fund that the provincial auditor’s report said was nearly $600 million in the hole at the end of the 2012-13 fiscal year, instead of the $58 million surplus reported by the finance ministry.
The same provincial auditor issued an “adverse’’ opinion on the province’s books, saying the financial statements do not provide a fair and accurate accounting of the province’s fiscal position.
So Wall finds himself between a rock and hard place, largely of his own making. Happy New Year will have a whole new meaning for the premier in 2014.
Don’t count the Premier down quite yet. He enjoys considerable trust from the people of Saskatchewan and as Alan Blakeney once said, “It’s easier to govern duing adversity than prosperity.” That being said, winning a third election is much tougher than winning the second.