Four economic themes to watch for in 2021

Following an economic contraction of 5.0% for the Saskatoon Region in 2020, strong growth of 6.0% is expected this year as vaccinations surge. Moreover, there are four themes emerging in the outlook for the year ahead:

  1. Recovery will be uneven
  2. Households and businesses have significant cash reserves
  3. Strong commodity prices and exports
  4. Employment is still recovering.

#1 Recovery will continue to be uneven across sectors

Recovery from 2020’s shocks has been uneven and this is expected to continue, with mixed outlooks for real estate and manufacturing depending on subsectors, as well as strong retail sales and lagging accommodation and food services performance.

Real estate
Saskatoon’s housing market reached a low in April 2020, but the number of homes being sold in the resale market soared in the summer and fall. With low interest rates and surging demand, market conditions have tightened, increasing prices by about 5.0%. The rising demand from first-time and move-up home buyers is leading to a residential construction boom.

Saskatoon’s downtown vacancy rate remains high, however, at just below 15.5%. Investment in non-residential construction is accordingly low – down 47.6% from December 2019.

Accommodation and Food Services
Hospitality, leisure and tourism have been the areas most affected by the COVID-19 pandemic because of their reliance on in-person interaction and group gatherings. These industries are not expected to fully recover to pre-pandemic levels until 2024. Although high vaccination rates and lifted restrictions are anticipated by 2022, air travel in particular is forecast to recover more slowly than other sectors.

Retail Sales
Not only have retail sales fully recovered from the shocks of early 2020, but sales have also risen above pre-pandemic levels. Recovery has not been even across retail, however, as the sector’s growth has been primarily driven by big box retailers and a surge in e-commerce, while others are still facing challenges.

Note that government supports such as the Canada Emergency Response Benefit (CERB) and Canada Emergency Wage Subsidy (CEWS) have helped strengthen retail sales by offsetting lost income and preventing layoffs.

Manufacturing Sales
Changes in household consumption have also led to uneven recovery in the manufacturing sector. Transportation equipment, petroleum and coal product sales are down, while wood product manufacturing and food manufacturing have shown strong gains. In December, manufacturing sales were 19.6% higher compared to the year before and 38.2% higher from their April 2020 level.

#2 Households and businesses have significant cash reserves

Canadian households and businesses accumulated significant cash reserves during the last year that will help drive recovery when restrictions are lifted. The pandemic shifted consumer behavior to prioritize saving, and businesses are waiting for signs of recovery to start investing. These cash reserves are expected to be a key growth driver when restrictions are lifted and people are able to travel and gather again.

#3 Strong commodity exports and prices

The Canadian economy is seeing an upswing in commodity prices, with nearly all commodities recovered to pre-pandemic prices or even multi-year highs.

Agricultural Exports
2020 was a record year for Saskatchewan agriculture, with approximately $16.9 billion in exports – a 31.6% increase from 2019. Canola seed, non-durum wheat, lentils, canola oil and durum wheat continue to lead agricultural exports.

Between surging home renovations and increased residential construction, lumber prices reached record highs during the pandemic and are expected to remain high into 2021.

Oil fundamentals are showing a strong trajectory for 2021, with both supply and demand shifting back into growth. Although oil prices have moved past the $60/bbl. benchmark, demand is expected to take longer to recover.

Global demand for uranium is anticipated to grow, with more than a dozen nuclear reactors expected to come online in the near future, spurring demand for uranium.

#4 Employment is still recovering

June 2020 saw the pandemic’s worst employment levels, with 16,900 fewer people in the Saskatoon CMA employed compared to the year before. By January 2021, however, the labour market saw some recovery, with unemployment reduced to 6,600. This recovery remains highly uneven: women, youth and new graduates have been disproportionately affected by the pandemic. Further labour market improvements will be linked to the economic rebound fostered by increasing vaccination rates.

Tyler Nguyen

Manager, Economic Intelligence
(306) 952-2400