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Saskatoon Region: Q2 2023 Economic Update

The Saskatoon Region is navigating a dynamic and intricate economic landscape shaped by an intersection of significant events and economic challenges, pointing to slower economic growth. Among these are high but steadily declining inflation, high-interest rates, global geopolitical uncertainties, lower consumer spending, the looming possibility of a severe drought and sustained high commodity prices.

Despite the prevailing lower sentiment in the economy, 2023 has brought forth several encouraging developments across multiple industries. Notably, the mining sector continued to flourish with substantial investments and growth, benefiting from the high prices of minerals and an emerging critical minerals sector.

Moreover, the Saskatoon Region experienced record-breaking exports in 2022 and a record number of exporting businesses. This positive trend is expected to carry into 2023, as provincial numbers indicate a growing trend.

Furthermore, the Region is experiencing a tremendous surge in manufacturing sales, particularly in food manufacturing, which has seen significant growth year-to-date in May, and is on track to deliver another record year.

Key Takeaways for Q2 2023

1. Inflation and Interest Rate
The Bank of Canada took decisive action in June and July, raising its key interest rate twice, reaching the highest level since 2001 at 5.0%. As a result, the cost of borrowing has been steadily increasing, affecting consumers, businesses, and municipalities.

On another front, inflation in the Region is steadily declining, at 3.9% in June. Saskatchewan is sitting at 3.3%, with core inflation, which excludes energy and food prices, at 4.1%. Fuel prices have significantly fallen from their peak in 2022, contributing to the decline in overall inflation; however, food, housing and utility prices remain high despite declining steadily, at 8.6%, 7.2% and 10.4%, respectively.

2. Population and Labour

Saskatchewan is experiencing a surge in population, primarily due to immigration, reaching a record of 33,101 new residents entering the province in Q2 2023. While quarterly population data on a CMA-level basis is unavailable, labour force data indicates that Saskatoon’s working-age population growth outpaced the provincial population growth rate, growing at 3.9% compared to the province of 2.8%.

Despite the growth in the working-age population, the Saskatoon Region has witnessed a deceleration in employment growth. After reaching a peak of 12.7% in Q2 2022, the annual employment growth has gradually tapered off to 0.4% in 2023. This deceleration was due to a drop in employment in some industries and offset by an increase in others. The construction, manufacturing, wholesale and retail trade sectors saw employment levels drop the most, falling by 11.0%, 16.4% and 8.4%, respectively. Conversely, the mining, professional, scientific, technical services and education sectors saw employment rise the most, increasing by 39.5%, 15.6% and 9.4%, respectively.

Moreover, the participation rate reached 70.9% and the unemployment rate of 4.7%, suggesting higher retention of employees as more people enter the labour force while the job vacancies rate remain high.

3. Agriculture and Natural Resources

Agriculture

After a recovery in 2022 following a severe drought, Saskatchewan’s agriculture industry faces another potentially challenging year in 2023 due to persistently dry and hot weather conditions, significantly impacting the agricultural outlook.

Farm Credit Canada’s updated outlook on grains, oilseeds, and pulses reveals downward revisions in crop yield projections. The severity of the drought in certain regions of Saskatchewan, coupled with the rising prevalence of grasshoppers and their detrimental impact on crops, has led to major crops like wheat, canola, and pulses expecting a substantial decline in production. This downturn could potentially result in reduced export volumes and diminished revenues for the agriculture sector for both grains and livestock.

Natural Resources

Commodity prices have remained high, despite falling from their peak levels, indicating sustained growth in the mining sector. And despite some provincial producers reducing output in response to price declines, the mining sector continues demonstrating remarkable resilience and positive momentum.

Uranium production has grown significantly by nearly 63.2% year-to-date in May. However, potash and salt production saw slight decreases of 10.3% and 11.3%, respectively. Other mineral production also declined by 2.9%.

Despite challenges from high inflation, the ongoing development of the Jansen Potash Mine continues to drive capital investment within the province. Saskatchewan is forecasted to continue leading in capital spending growth with an impressive 21.5% increase in 2023. Substantial spending boosts are expected in the mining (61%), oil and gas (16.3%), and manufacturing sectors (32%).

4. Manufacturing

Manufacturing continues to shine brightly, emerging as a robust pillar of the economy in the Saskatoon Region.

Building on the momentum of a record year for manufacturing sales, the industry is now poised to surpass its own achievement, growing 15.0% year-to-date-growth in May. Notably, the food manufacturing segment is seeing extraordinary momentum with growth of 246.7% in the same period. Moreover, other manufacturing sectors, such as fabricated metal products, machinery manufacturing, and transportation and equipment manufacturing, are also contributing to the industry’s overall strength and progress.

5. International Impact and Trade

The Saskatoon Region saw record breaking exports in 2022, reaching $15.5 billion, a jump of 70.1% from last year. Moreover, the number of exporting businesses reached a record high of 394. Progressing into 2023, the Region can anticipate strong growth, as indicated by provincial data showing an increase of 12.1% year-to-date growth in May. Despite these encouraging figures, the international trade sector remains susceptible to various influencing factors, including:

  • Port of Vancouver Strike: Lasting 13 days, this strike disrupted trade and will impact the Saskatchewan economy for weeks to come, impacting agricultural producers, mineral producers and many exporting-related businesses that rely on the continuous flow of goods and services.
  • Black Sea Grain Deal: Adding further to the war in Ukraine, Russia’s exit from the Black Sea grain deal, which allowed the free movement of Ukrainian grains and fertilizer to global markets, will have a signficant impact on global food security and raise demand for Saskatchewan agricultural products.
  • Climate Risk: Climate change resulted in more frequent severe weather events, such as wildfires, drought and extreme heat. Saskatchewan, is already seeing the impact of it on its agriculture sector, as both crop and livestock producers are reporting moderate to severe drought conditions, significantly impacting their operations.

Looking Ahead

Looking ahead, the Saskatoon Region economy continues to be impacted by reduced spending by both consumers and businesses, owing to a high cost of borrowing and a prevailing high inflation environment. This decline in demand has consequently led to an overall slow in hiring, as evident from the drop in employment growth.

Moreover, the potential impact of a severe drought on Saskatchewan’s agriculture sector further adds to the already slowing economy; however, Russia’s exit from the Black Sea Grain Initiative may alleviate some of the impacts with upward pressure on commodity prices.

Despite facing several adverse economic conditions, Saskatchewan continues to showcase resilience across its key sectors, boosted by global demand for its world-class natural resources, leading to robust exports and a thriving mining and manufacturing sector.

Tyler Nguyen

Manager, Economic Intelligence
(306) 952-2400