What it means
The Economist Intelligence Unit, often shortened to EIU, offers analysis designed to help decision makers understand economic and political conditions around the world. Its subscribers include multinational companies, banks and public bodies that need independent views on markets they are entering or already serve.
It is separate from the weekly newspaper, though it is part of the same group. A typical product is a country report, which sets out the outlook for growth, inflation, exchange rates, politics and the business environment over the coming years.
The unit also publishes risk ratings that score countries on factors such as sovereign (government) debt, banking stability and political stability. These scores help lenders and investors decide how much risk they are taking when they lend or invest overseas.
Businesses use the analysis in practical ways. A company considering a new factory can compare countries on labour costs, infrastructure and regulation.
A finance team can use the forecasts as an outside check on the assumptions in its own budget for exchange rates or inflation, and a treasury team can use the risk ratings when setting credit limits. The unit also publishes well-known comparative indices.
One example is a ranking that compares the cost of living in major cities, which employers use to set pay for staff posted abroad. Others rate the quality of democracy or the ease of doing business, and they are widely quoted in the media.
As with any forecaster, the value lies in the reasoning more than in the single number. Forecasts can be wrong, especially when events are sudden, so sensible users read the underlying assumptions and consider a range of outcomes.
It is good practice to compare views from several providers before making a major decision. Because the service is a subscription product, much of the detailed content is not free.
Summaries and press releases are often available publicly, which makes the headline findings accessible to students and journalists.
In practice
Real-world examples.
Example
A mining company is deciding between two countries for a new project. The team reads country risk reports to compare political stability and currency risk before committing $200,000,000. The team also reads the assumptions behind each forecast, so it knows what would need to change for the view to be wrong.
Example
A multinational employer sends managers to several cities abroad. HR uses cost-of-living comparisons to set housing and cost-of-living allowances so that staff are treated fairly. The figures are updated regularly, which helps the company keep its allowances in line with local costs.
Example
A bank lending to an importer in an emerging market uses outside country risk ratings to set the exposure limit for that country. The limit is reviewed when the ratings change. A sharp downgrade triggers an immediate review of all open exposures to that country.
Case study
Seen in the real world.
This is a fictional story. Northwind Foods, an invented food exporter, was thinking of opening its first overseas distribution centre. The finance team shortlisted three countries and wanted an independent view of the risks.
The team subscribed to a country analysis service of the kind the Economist Intelligence Unit provides. The reports showed that one country offered the cheapest labour but had high inflation and weak currency prospects, while another was more expensive but far more stable.
The company chose the stable option and budgeted for a modest exchange rate move rather than a sharp fall. Two years later, the cheaper country suffered a currency crisis, and Northwind was pleased to have avoided it. The story is illustrative and the company is fictional. The finance director added that the value of the service was not in any single number but in the structured way it forced the team to think about risk.
Watch out
Common mistakes.
- Treating a forecast as a guarantee. Forecasts are informed judgements, and surprises are common.
- Confusing the unit with the newspaper. They belong to the same group, but the unit is a separate research service.
- Relying on one source for a major decision. It is wiser to compare several providers and to test the plan against different scenarios. Differences between sources are often the most informative part of the exercise. A wide gap between two forecasts is a prompt to ask which assumptions explain it.
Questions
People also ask.
What does the Economist Intelligence Unit do?
It produces research, forecasts, risk ratings and rankings that help organisations understand markets and countries.
Who uses its research?
Companies, banks, investors and governments use it for planning, risk management and market entry decisions.
Is the research free?
Much of the detailed content is available by subscription, although headline findings are often published openly. Students and journalists often rely on these public summaries. Anyone using such material should note the date of publication, since economic conditions change quickly.
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