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 Agathe Demarais, global forecasting director. Agathe and her team were awarded first place for correctly forecasting Canada’s fiscal balance throughout the course of the coronavirus pandemic. 

Agathe, firstly, what happened to Canada’s fiscal balance amid the pandemic?

Unsurprisingly, Canada posted a huge fiscal deficit last year as a result of the measures that the government put in place to support the economy, protect incomes, and ensure that businesses did not go bust. Canada usually records small budget surpluses, but last year the government posted a massive budget deficit of 10.7% of GDP — or around CA$235bn (US$175bn). This sounds huge, but this is in line with what we saw in other developed countries: many of them recorded fiscal deficits well above 10% of GDP last year.

How close was our prediction in comparison to this?

Very, very close is the short answer! By May last year we were already forecasting that Canada would post a budget deficit of around 10% in 2020. This is quite an early forecast win (bear in mind that at the time, the pandemic had just started to hit North America), and it was a tough one: volatility was very high and it was hard to make projections for what would happen in the rest of the year. Yet we were reasonably confident about making this forecast, and winning an award for it shows we were right to be.

Could you provide a bit more detail around the approach to forecasting fiscal balance under such volatile economic conditions?

This really is a team effort. As part of its daily work, the global forecasting team – which covers Canada – constantly reviews The EIU’s global assumptions for growth, inflation, and fiscal data across the world. This global overview helps us to finetune our forecasts for the US and Canada, which are the two countries that the global forecasting team focuses on. Another key factor is that we are also in close contact with our network of contributors on the ground, who help us spot trends that we would otherwise miss. 

What about 2021 and beyond? Will we see Canada’s fiscal balance return to pre-pandemic levels?

This is the million-dollar question. Our projections assume that Canada will continue to post big fiscal deficits in the coming five years, although their amount will have been almost halved by 2025. So to go back to your question, we do not expect Canada’s fiscal balance to return to positive territory any time soon. This will send public debt soaring, to around 120-130% of GDP. This is a lot, but we are so far not worried about this: as long as interest rates remain low, such high levels of debt will not prove difficult to service for Canada. 

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