The most accurate macroeconomic forecasts were made by institutions that adapted their models to 2020’s new epidemiological situation
The pandemic’s impact on Spain’s economy and its citizens’ mobility has represented a formidable challenge for standard forecasting models. Macroeconomic forecasters have had to adapt, taking into account the epidemiological roots of today’s highly uncertain context and the adjustments demanded by the ‘new norm’ and the low-contact economy. They have also had to weigh the effects of the different economic measures that have been implemented and the need to develop real-time monitoring and forecasting mechanisms to analyse vast amounts of data. Within this context, EsadeEcPol has presented a new edition of ‘Esade Target’, identifying the Institute for Economic Studies as the best in terms of forecasting the Spanish economy’s downturn in 2020.
In addition to the traditional ‘Esade Target,’ which analyses the accuracy of forecasts made by leading institutions regarding Spain’s economic growth and unemployment over the last three years, EsadeEcPol‘s special ‘Covid Target’ edition examines the ability of key Spanish organisations and their research groups to adjust their economic forecasts in difficult times such as today’s pandemic. Some institutions, including the OECD and the Bank of Spain, even created various forecast scenarios.
Specifically, this edition of ‘Esade Target’ not only examines the September 2019 economic and job-market forecasts made by institutions included in the Fundación de las Cajas de Ahorros (Funcas) panel, Esade Target’s normal focus, but also the projections they made in May 2020 when the pandemic’s impact was already apparent world-wide, comparing these forecasts to the data registered by the Spanish National Statistics Institute (INE) at the end of last year in terms of economic growth and unemployment.
Covid Target – Economic Forecasts
According to the INE’s quarterly accounting report, Spain’s GDP dropped by 11% at the end of 2020, the same rate predicted in May 2020 by the Institute for Economic Studies and close to the OECD’s most optimistic scenario (with a difference of 0.1 points) and forecasts by Axesor (0.2), the Chamber of Commerce (0.4), the Spanish Confederation of Spanish Employers - CEOE (0.8) and Repsol (0.9). Given the economic changes provoked by the pandemic, the majority of institutions EsadeEcPol studied adjusted their forecasts for 2020. Consequently, while they projected a 1.9% average rate of growth in September 2019, in May 2020 they forecast a -9.3% drop on average (an 11.2-point adjustment).
In this respect, EsadeEcPol points out that the institutions that corrected their forecasts the most between September 2019 and May 2020 were also the ones that came out the best in the ‘Covid Target’. These institutions include Repsol (whose forecasts went from +1.7% to -11.9%, that is, a 13.6-point difference), the OECD (13), the Institute for Economic Studies and Axesor (both with a 12.8-point difference), and the Chamber of Commerce (12.5).
Covid Target – Employment Forecasts
However, while the institutions were able to correctly adjust their economic forecasts in the midst of the pandemic, their job-market forecasts were not as accurate. The mean unemployment rate (20%) forecast by institutions included in the Funcas panel in May 2020 exceeded the actual unemployment rate (16.13%) registered by the Labour Force Survey (LFS), a difference of nearly four points. In this area, the institutions whose forecasts best approximated reality were the Autonomous University of Madrid’s Economic Forecasting Centre and the Bank of Spain’s optimistic scenario (both with a 2.17-point difference).
In terms of employment, the scope of the adjustments also affected the accuracy of the institutions’ later forecasts, to a large extent. However, on this occasion, the experience from other crises and their effects on employment led the institutions to overestimate the increase in unemployment. As a result, the institutions that changed their forecasts the least were the ones that registered the smallest differences in their analyses.
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About Target Esade and Target Covid
Esade Target assesses the accuracy of the forecasts the institutions included in the Funcas panel make in terms of Spain’s GDP and unemployment rate over the last three years. Traditionally, Target Esade analyses each institution’s forecasts in autumn for the following year, comparing these with the real data at the end of the year and calculating the difference. This year, in addition to analysing their autumn forecasts, Covid Target has also taken into account the forecasts Funcas panel institutions made in May 2020 for the entire year.
