The Economist Intelligence Unit (EIU) was the top economic forecaster for country-level macroeconomic indicators for the period from January 2015 through December 2016, according to research aggregator FocusEconomics.
FocusEconomics, a Spanish provider of consensus economic forecasts, calculated its awards based on forecasts for economic indicators such as GDP or inflation for 80+ countries submitted by the 200 firms contributing to its service. The awards were given to the forecasts with smallest absolute error (absolute difference between the individual forecast and the outturn of the indicator) discounted so that an error at the beginning of the forecasting cycle (January 2015) has less weight than an error at the end of the cycle (December 2016).
FocusEconomics 2017 Economic Forecasting Awards
Founded in 1999, FocusEconomics provides consensus economic forecasts for 127 countries in Africa, Asia, Europe and the Americas, as well as price forecasts for 33 commodities. Co-founder Arne Pohlman had previously worked for Oxford Analytica (which does not currently submit forecasts) before starting FocusEconomics. The Barcelona-based company has forty employees registered on LinkedIN.
Our Take
The majority of contributors to FocusEconomics are investment banks, which represent the majority of finishers among the top 20 forecasters (19 of 26 firms). However, there are four independent firms in the top 5 providers (out of 6 firms), having received 68% of the awards given to the top five finishers.
Which leads to the question why independents, which are under-represented within FocusEconomics’ universe, are over-represented among the very top forecasters? Conflicts are an unlikely explanation, unlike the positive bias for stock recommendations shown by bank research, because there are no business benefits to skewing forecasts of GDP or inflation.
Perhaps it is a matter of focus. Economic forecasts are a core product for independents like EIU or Oxford Economics. Their livelihood depends on their forecasts, whereas for the investment banks forecasts have been more of a throw-away product, ‘marketing chum’ for higher value services such as trading.
Importantly, up until now, investment banks haven’t had to price their research products, which is changing thanks to new research unbundling provisions in MiFID II which goes into effect as of January 3, 2018. Economic forecasts may remain ‘marketing chum’ for banks, but they will now have to monetize their research effort with other higher-value research products such as reports, conferences or face-time, rather than trading. It also likely that the number of investment banks contributing forecasts to FocusEconomics will shrink over the coming years as investment banks rationalize and reorganize their research efforts.