Utilising our healthcare expertise to make bang-on forecasts for China

The year 2020 was a particularly difficult one for economic and political forecasting. In a retrospective report, “Predicting the unpredictable: Forecasting in 2020”, we asked our analysts how they approached forecasting in a year like no other.

In the report, Yue Su, The EIU’s principal economist for China, explains how we continued to make spot-on growth forecasts for China throughout the pandemic.

How did we adapt our economic forecasting model for China in 2020?

Mapping out China’s growth trajectory in 2020 was tricky. As the first country to experience Covid-19, there was no precedent for estimating the shock to GDP caused by lockdown-related policies. The pandemic also demanded the integration of epidemiological assumptions into our economic models. This was no small task for a team that is usually more comfortable with inflation and trade statistics than the healthcare landscape. To tackle this challenge, we turned to high-frequency data and used the on-the-ground experiences of our China team, along with trends gleaned from our dedicated monitoring of China’s city and provincial-level economies.

How successful was this approach?

Our quarterly growth forecasts were spot on throughout the year and the factors that we identified early on as part of China’s economic recovery—including a rapid resumption of production but a lagged recovery in consumption, as well as the decision to resist massive stimulus—continue offering clients forward-looking guidance for 2021. Not everything is Covid-19 related, of course; US-China ties remain the biggest non-pandemic threat to international business. Our long-held forecast, first voiced in mid-2019, that US pressure on China would eclipse tariffs to manifest in investment and financial restrictions has now become reality. We will be keeping an eye on these developments to identify the top risks and concerns for our clients as US-China frictions likely heat up this year.

Elsewhere in Asia, we rightly forecast which Asian economies would contract and which would not early on. These accurate projections were based on our early expectation that Asian countries would broadly get their coronavirus response right (with India being a notable exception), exhibiting high levels of population compliance and drawing on their experience from severe acute respiratory syndrome (SARS); overall, this put the region in a better position than others.

For an in-depth look at the trials and tribulations of forecasting throughout 2020 in both China and the rest of the world, download our latest report, “Predicting the unpredictable: Forecasting in 2020”.

All our China forecasts can be found in our Access China service, the only single source of data, analysis and forecasts for the world’s largest emerging market at provincial and city levels.

As China economist at The Economist Intelligence Unit, Yue Su plays a leading role in shaping the EIU’s views on China’s economy at both the national and regional levels. Her research focuses on infrastructure development, regional economics, state-owned enterprises and the Belt and Road Initiative (BRI). She leads the regional forecasting work conducted under the EIU’s Access China service, which offers unrivalled analytical coverage of China’s provinces and cities, and is also involved in advising Chinese companies investing globally.