Potash woes worsen Saskatchewan growth, debt outlook

Mon Feb 1, 2016 3:33pm EST
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By Fergal Smith

TORONTO Feb 1 (Reuters) - Tanking fertilizer prices have worsened the economic and budget outlook for the Canadian province of Saskatchewan, where the oil shock has already stalled growth, pushed the government into deficit and caused its bonds to underperform.

Fertilizer giant Potash Corp of Saskatchewan last week forecast its bleakest year in a decade. Royalties from its potash mines are a key contributor to the provincial budget.

Saskatchewan may have seen no growth, at best, in 2015, economists said, and given the latest potash news, this year is not looking much better.

"The economy is struggling mightily," said Nick Exarhos, an economist at CIBC Capital Markets, who noted the oil shock has spilled over to other sectors, including home and retail sales.

He predicted its economy would shrink 0.5 percent in 2016 after similar contraction last year.

"There was a decided slowing pattern (for potash demand)through the year (2015) and that seems to be intensifying as we move into 2016," said Paul Ferley, assistant chief economist at Royal Bank of Canada, who has scaled back his 2016 growth forecast to 1.0 percent.

Saskatchewan in November projected a C$262 million ($187.77 million) deficit for 2015-16.

But the November forecast was based on an average West Texas Intermediate crude oil price of $53 for 2016. It traded below $32 on Monday.   Continued...