Last month, FocusEconomics awarded The Economist Intelligence Unit (The EIU) as the best economic forecaster in 2020 and most consistent forecaster over the last three years.

This award recognises the outstanding insights of our world-class teams of analysts. We spoke to a few of these country analysts who picked up a first place ranking about how they approached forecasting in 2020 and the methodology behind their spot on predictions.

Here we chat with Agnese Ortolani and Emily Mansfield from our Europe team. Agnese and Emily were awarded first place for correctly forecasting France’s current account balance throughout 2020.

France’s current account deficit increased substantially in 2020. By how much did the deficit widen and what role did Covid-19 play in this?

In 2020 France recorded one of the largest current-account deficits on record–the largest deficit since at least 1982. The current-account deficit widened to US$48.9bn, equivalent to 1.9% of GDP in 2020, from 0.7% in 2019, reflecting sharp deteriorations in the trade deficit and the services surplus as a result of the global coronavirus pandemic. With generous government support helping to maintain consumer and business spending in France, the hit to imports of goods and services was less severe than the hit to exports. Nonetheless, the overall structure remained unchanged: France typically records a sizeable primary income surplus—reflecting extensive French investments abroad—and a smaller services surplus, offset by substantial deficits on the goods and secondary income accounts. 

How close was our prediction in comparison to this?

It is quite tough to forecast current account movements even in normal times. In France, for instance, the bulk of the variation on the current account in recent years has originated from the goods and services balances, which mostly depend on deliveries of aircraft and large cruise ships (which are difficult to predict), as well as tourism trends. It was particularly challenging to make predictions during the coronavirus pandemic, given the uncertainty about the epidemiological situation as well as high volatility in external trade flows. But by October we were forecasting that France would post a full-year current-account deficit of around US$50bn, very close to the eventual outturn. This was not a particularly early forecast win, but the fact that ours was the best forecast and hence won an award shows how tough it was for everyone. 

Could you provide a bit more detail around your approach to tracking current account balance under such volatile economic conditions?

This really is a team effort. As part of our daily work as analysts in the Europe team, we constantly analyse the available data and include The EIU’s global assumptions for growth, inflation, global oil prices and tourism flows across the world into our analysis. This helps us to fine-tune our forecasts for France, which are reviewed on a monthly basis. We are also in close contact with an extensive network of contributors on the ground, who help us spot trends that we might otherwise miss.

What about 2021 and beyond? Will we see the deficit begin to narrow?

We expect a recovery in external trade flows to begin in 2021, with France’s current-account deficit narrowing to 1.7% of GDP. Gradual improvements in the structural factors that have been keeping the external balance in deficit—notably France’s inflexible labour market and high tax burden—will continue, but we do not expect a move into surplus. We forecast an average annual deficit of 1.2% of GDP in 2022-25.

All our award-winning forecasts can be found in our country analysis service, EIU Viewpoint. Browse economic and political analysis, forecasts and data for nearly 200 countries, 26 industry sectors and 25 critical goods.

Details of the awards and the list of winners are available at: www.focus-economics.com/awards