A chill in the potash industry is expected to lead to a slowdown in Saskatchewan's hot economy, a Royal Bank report says.
Rising inventories have led to large cutbacks in potash production in Saskatchewan, RBC Economics said Thursday.
RBC is now predicting gross domestic product growth of 2.8 per cent for 2012 and 3.5 for 2013. That compares to a previous RBC forecast of 3.6 per cent and 4.0 per cent respectively.
"It seems that emerging economies are holding back on purchases of potash until long-term agreements have been signed with major producers in the province," RBC's chief economist Craig Wright said in a news release.
However, it's expected that potash activity will steadily recover in 2013 as when the purchase agreements are eventually signed. Last year's drought in the U.S. will likely mean more fertilizer, including potash, will be used as farmers seek to boost yields.
Despite the slight cooling off, Saskatchewan is expected to be a "growth leader" in Canada through to 2014.
The bank said the downward revision of the GDP growth forecast is also tied to a disappointing canola harvest, although that been offset somewhat by a surge in wheat production.