Slumping oil and tighter belts

And revenue was going to be down by almost $400 million from the 2015-16 budget, thanks to falling oil prices (which trimmed another $270 million from provincial coffers) and almost $100 million in lower tax revenue due to the slower than expected economy.

Far from reporting a $107-million surplus, Doherty was forced to trim $107 million from government spending to avoid posting an even larger deficit.

With oil prices nearing 12-year lows, the prospects for balancing Saskatchewan’s budget in 2015-16 look slim indeed. Yet, Doherty said he still was hoping to reduce – even eliminate – the deficit by fiscal yearend.

But, as Doherty, a former financial advisor, told reporters in November: “Hope is not a plan.” He knows he’s going to need help in balancing the books this year.

According to a recent report from the Conference Board of Canada, the province’s economy contracted by 1.1% in 2015. That’s Saskatchewan’s worst economic performance since the bruising recession of 2009 and second only to Alberta’s as the weakest showing among the provinces in 2015.

The year’s figures are a far cry from those of the previous 10 years, when Saskatchewan led Canada in economic growth, posting average gross domestic product (GDP) growth of slightly more than 1.5% from 2004 to 2014, according to the Conference Board.

The biggest culprit? Oil, which has gone from being the province’s biggest economic engine to the biggest stumbling block. The number of oil wells drilled in the province last year was expected to drop by almost half, to 1,900 from 3,600 in 2014. Oil production is expected to decline by about 6% year-over-year to 176.8 million barrels in 2015.

The Petroleum Services Association of Canada forecasts the number of wells to be drilled in Saskatchewan in 2016 at slightly fewer than 1,800.

Unfortunately, oil isn’t the only problem plaguing the slowing Saskatchewan economy this year. Global commodity prices are down – including another mainstay, potash. And when potash prices are likely to improve remains unclear.

Potash, a pink mineral that is one of three main components of fertilizer (along with nitrogen and phosphate), has been stuck below US$300 a tonne since the collapse of the Belarusian Potash Co.-led cartel in 2013.

Higher production brought on by major mine expansions during the past five years was expected to offset weak potash prices in 2015. But Potash Corp. of Saskatchewan idled three of its five mines in the fourth quarter, negating some of the 10% increase in production projected for last year.

Agriculture also was supposed to bounce back in 2015, but drought-like conditions in the first half of the growing season reduced overall output to 29 million tonnes, according to Statistics Canada. That output was down by 7.6% from the 31.4-million tonne crop in 2014 and over 30% lower than the record crop of 38.4 million tonnes in 2013.

An economic forecast from Royal Bank of Canada predicts that agricultural production will rebound by 8% in 2016, contributing to overall provincial GDP growth of 2.5% this year.

Manufacturing, which is closely tied to the oil and gas and agriculture sectors, had a disappointing year in 2015, with manufacturing sales down by 11% in the first three quarters of the year.

Not surprisingly, consumer confidence was weak in 2015, with retail sales down by 1% (excluding gasoline sales), new motor vehicle sales down by 5% and home resales down by 12% in the first 10 months.

Total urban housing starts in Saskatchewan were 4,332 in 2015, down by almost 40% from 7,153 in 2014, according to Canada Mortgage and Housing Corp.

Fortunately, Saskatchewan’s unemployment rate, at 5.5% in December, remained the lowest in the country for 26 of the last 27 months. However, even that singular achievement was tainted by the increase in unemployed (by 10,400 year-over-year) and the loss of 900 jobs during the same period. The good news is that full-time jobs increased by 1,500 year-over-year in December.

Oil prices sank further, to the low of US$30s a barrel in early 2016, nixing the anticipated rebound in the province’s economy. With a provincial election set for April 4, Premier Brad Wall and his Saskatchewan Party government are hoping for a turnaround in the province’s economic fortunes.

Sitting on a comfortable 30-point lead in the polls over the rival New Democratic Party, Wall and company have every reason to be confident. However, after the New Democratic Party’s shocking, come from behind victory in Alberta last May, anything seems possible.

SASKATCHEWAN

Population: 1,133,029

GDP, 2014 ($bil.): 82.8

GDP, % change: -0.9

2015-16 deficit ($mil.): 262.2

Estimated net Debt ($bil.): 5.5

Per capita wage growth, % change, 2015: 1.2

Household disposable income, per capita: $33,799

Figures from latest available reports/estimates

Sources: Conference Board of Canada; Province

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