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 to Pratibha Thaker, editorial director for the Middle East and Africa. Pratibha and her team were awarded first place for correctly forecasting Saudi Arabia’s economy throughout the course of the coronavirus pandemic. 

How did Covid-19 impact the Kingdom’s economy in 2020?

The Kingdom’s economy was negatively impacted in a variety of ways. It was hit by low global oil prices and crude production, which depressed oil exports and government fiscal receipts. This was at a time when emergency health spending and government support programmes added to fiscal pressures. As expected, capital investment was cut back sharply, impeding progress towards greater economic diversification (as laid out in Vision 2030). At the same time, government borrowing increased substantially throughout the year to cover a widening fiscal gap. The lockdown was equally if not more disruptive for the non-oil economy, as global supply chains came to a virtual halt. Other areas like religious tourism, hospitality, transportation and retail trade, also suffered deeply, as the government was forced to implement severe restrictions. A spike in unemployment among Saudis (especially in the second and third quarters) contributed to a sharp decline in personal consumption.

How close were our forecasts in comparison to actual performance?

As to be expected, the rapid global spread of the pandemic in early 2020 necessitated some significant changes to our forecasts and analysis. A daily moving goal post! We started the year with a small pick-up in economic growth for 2020. With the covid induced impact becoming increasingly clear, we changed our forecast to a contraction of 4.1%. This turned out to be exactly the final outcome. Similarly, our forecast for the government deficit started at a lower level, and increased this to 12.8% of GDP in May. This was also relatively close to the final outcome . Similarly, we started the year forecasting a small current-account surplus, which was changed to a deficit very early in the year, which was also close to the final outcome.

Could you provide a bit more detail around the approach to forecasting Saudi Arabia’s economy under such volatile economic conditions?

As is usual in forecasting, the accuracy of the predicted outcomes is heavily dependent upon the robustness of the underlying assumptions, insights, and also confidence to make the bold changes pretty early in the cycle. Given the rapidly unpredictable impact of Covid-19 infection rates and official response, this was clearly an exceptional year when country insights and anticipated official actions were major influencing factors. In the case of Saudi Arabia, forecasts for the price of oil were clearly paramount. By April (following a sharp weakening in global oil demand because of widespread lockdowns), we had to lower our oil forecast. However, this was followed by an unexpectedly sharp rally in oil prices in the second half of the year, partly as a result of vaccine breakthroughs. Similarly, an unexpected policy response to economic shocks is another factor, which continued to present some challenges. For instance, the government’s decision to introduce a surprise tripling in VAT (from 5% to 15%) at the beginning of July, hitting both consumers and corporates, who were already dealing with pandemic induced severe downturn.

What about 2021 and beyond? When will the Kingdom’s economy return to pre-pandemic levels?

The emergence of a more forceful carrot and stick approach – which leverages the riches on offer through ambitious Vision 2030 related projects and the requirements of the recently announced Project HQ initiative – will have major implications for foreign businesses and investors. We are forecasting a gradual recovery in the Saudi economy from 2021 onwards.  A tapering of oil-production constraint, together with a continued recovery in the non-oil economy, will then lead to faster growth in 2022. The non-oil economy will also benefit from the roll-out of Covid-19 vaccines and the need for lighter virus containment measures. Fortunately for Saudi Arabia, the Kingdom has got access to enough vaccine doses to push ahead with its inoculation drive and should be among the first countries in the Middle East to secure widespread vaccination coverage – a milestone that is expected to be reached by mid-2022. This should enable the economy to pre-pandemic levels by the end of 2022.

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