Saskatoon Region: Q1 2023 Economic Update

Economic growth for the Saskatoon Region has started to decline in Q1, coming off a strong year. Several economic conditions are now pointing to slower growth for the rest of 2023. However, the Region is still expected to emerge ahead of the rest of the nation, primarily due to the strength of local commodities and pricing.

Driven by significant investments and growth in mining, high commodity prices in minerals and crops, and a growing labour market, the Region is forecasted to achieve a growth rate of 2.6% in Q1.

Despite many positive indicators, economic headwinds impacting the economic landscape include the impacts of high inflation and interest rates, businesses seeing difficulty in attracting skilled workers, and uncertainties related to global factors, including the Ukraine-Russia War and China’s reopening.

Against this backdrop, SREDA has revised its economic rating for the Saskatoon Region to a B- for Q1 2023.

Key Takeaways for Q1 2023

1. Inflation and Interest Rate

Inflation and interest rates continue to headline the economic landscape. With higher borrowing costs and prices continuing to work across the economy, lower demand should translate to slower economic growth for the remainder of the year.

The Bank of Canada has moved to ‘pause’ additional hikes to assess the impact on prices, demand and the economy. By increasing interest rates by 425 basis points over the last year, reaching a benchmark rate of 4.5%, inflation has begun to fall.

Inflation has since fallen from its record high of 7.3% last quarter to 5.9%. Despite easing inflation, food inflation has yet to indicate the same due to several factors, including transportation, utilities, food input costs and rising labour costs contributing to higher prices.

With continued high prices, purchasing power remains suppressed for households and businesses.

2. Job Market

The unemployment rate increased slightly to 4.3% from 4.2% last quarter. Similarly, the participation rate rose to 70.0% from 69.9% as more individuals entered the labour force and found employment, growing by 1.1% and 1.0%, respectively.

The labour shortage can be said to have eased slightly with an increase in the number of workers entering the labour market; however, there remains a shortage of skilled workers across the economy, with varying degrees of impact on businesses, small and large. While some are having lesser trouble retaining and hiring workers, others are struggling to find and attract skilled workers.

3. Population Growth

Saskatoon, with the rest of Canada, depends on immigration for the majority of its population and labour force growth. With Canada targeting 410,000 to 505,000 new immigrants in 2023 and more in 2024 and 2025, Saskatoon should anticipate continued population growth and higher employment levels.

In 2022, immigration fueled economic growth, supporting the population and filling in some labour gaps. The trend will continue until 2025, bolstering economic growth and contributing to consumer spending.

4. Agriculture

Agriculture will continue to be a bright spot for the economy in 2023. Better growing conditions in 2022 and high commodity prices should continue to contribute to a solid economic performance for the sector. However, higher operating and input costs will offset the sector’s performance to a certain degree.

Coming off a strong recovery in 2022, where crop production rose 55%, agricultural production should continue to increase this year. According to Farm Credit Canada, Saskatchewan is forecasted to come out on top in farm cash receipts among the provinces, growing 7.6% to $22.2 billion.

5. Natural Resources

Despite higher borrowing costs, non-residential investment intentions are rising in the mining, quarrying and oil and gas extraction sectors. According to Statistics Canada’s non-residential capital spending intentions survey, non-residential investment spending will increase by 22% in 2023. This investment translates to current examples, including BHP’s Jansen potash mine project, Saskatchewan Research Council’s REE Processing Facility, and Nutrien’s investment to boost potash production and investment in underground mining.

Commodity prices in agriculture and minerals remain high, supported by factors such as the conflict in Ukraine, the recent reopening of China and climate-related challenges. It’s also worth noting that growth in agriculture is also driving demand for potash mining due to a growing global food crisis.

And then there is Uranium. Uranium has already been a major headline in Q1, with Cameco obtaining a significant supply agreement with Ukraine’s state-owned energy utility, Energoatam, and other countries and acquiring Westinghouse Electric. With long-term positive sentiment, the outlook for uranium prices and the sector is rising as nuclear energy continues to regain popularity and clean energy becomes a focal point of the economy.

Looking Ahead

The economic forecast for the Saskatoon Region in 2023 shows some headwinds but also some bright spots. While inflation and interest rates may pose challenges to economic growth, the region’s strong commodities sector, including mining and agriculture, and a solid job market should help offset some of these challenges.

Additionally, the region can anticipate continued population growth and higher employment levels supported by immigration, slightly offsetting labour market pains as more skilled workers enter the workforce in the next two years.

Overall, the Saskatoon Region’s economy is expected to perform relatively well in 2023, with a forecasted growth rate of 1.2% for the remainder of the year.

While economic conditions may shift throughout the year, the outlook for the Saskatoon Region remains positive, supported by strong commodities prices, investments in natural resources and population growth.

Tyler Nguyen

Manager, Economic Intelligence
(306) 952-2400