The Lithuanian Free Market Institute presents the results of a third survey of macroeconomic variables in Lithuania. The survey was launched in 1997. About fifty respondents participated in each of the first two surveys. Their reported estimates and forecasts were systematised and analysed in comparison with available official statistics. The results were presented in two bi-lingual (Lithuanian and English) studies.

At the beginning of the study we present the goals and methodology of the survey, the variables under investigation and methods of their analysis. The study goes on to interpret the estimates of individual macroeconomic variables and at the end offers generalisations and concluding insights and remarks.

The primary objectives of the survey are to obtain, based on the opinion of market participants, estimates of economic indicators necessary in planning business activity, to allow the comparison of these estimates with official statistics, and to interpret the most noticeable differences. The LFMI methodology of data gathering and generalisation differs from that used by the Lithuanian Department of Statistics (LDS). Our aim is not to defy official figures but to provide alternative estimates of economic variables. The significance of alternative valuations stems from the benefits offered by a wider choice of information. The effectiveness and forms of presentation of official economic statistics leaves much to be desired. Official estimates are poorly structured, inconvenient to use and released with considerable delays. Yet, these were not the only considerations behind our initiative.

The specifics of an economy in transition, or a small and open economy, are conditioned by rapid changes. The consequences of the economic collapse in Russia were an example of such changes. Naturally, market participants are faster to assess such developments, while official statistics cannot evaluate certain phenomena because of their nature. Shadow economy is the best example here. Finally, our aim was to present expert estimates and respective official data in a readable and convenient way to use.

In the third stage of the survey, the experts estimated economic variables for 1998 and provided forecasts for 1999. The 1998 (ex post) estimates are compared not only with the official statistics but also with the forecasts for this period (ex ante) produced a year ago. The estimates for the beginning of 1999 were formed in a quite different situation than previously. At that time the impact of the economic crisis in Russia on the Lithuanian economy became quite evident, and this may have influenced the estimations of the experts polled. It should be noted that government institutions revised their prognoses after assessing the effects of the crisis.

Forty six experts took part in the third stage of the survey. They estimated the following indicators: the growth of gross domestic product, the share of shadow economy in GDP, inflation, the producer price index, unemployment, wages and salaries, household income, investments as a share of household income, savings as a share of household income, earnings as a share of household income, unrecorded import and export, profit margin, return on equity, invested profits, nominal interest rates on loans and deposits, the share of non-bank loans, the expected interest rate on government securities, and the expected exchange rate of litas to U.S. dollar.

The project was funded by Vilnius Bank, Omnitel, and the Atlas Economic Research Foundation.

The Main Survey Findings

In the LFMI's survey, GDP growth in 1998 was estimated at an average of 4.9 percent (the official statistics was revised several times to reach 5.1 percent). The experts believe that the growth of GDP would decline to 4.3 percent in 1999 (the official forecasts range from 3.7 to 4.1 percent).

The experts polled believe that the shadow economy accounted for 24 percent of GDP in 1998. The growth of the shadow economy is expected to decline to 22.5 percent in 1999. The experts have produced similar estimates of the shadow economy in all three surveys. The 1998 estimates of unrecorded imports averaged 21 percent of total imports and those of unrecorded exports, 15.6 percent. The forecasts for 1999 are 20 percent for imports and 15.6 percent for exports.

Inflation was put at an average of 5.5 percent (the official indicator was 2.4 percent). The forecast for 1999 is 6.5 percent (the official forecast is 4 percent). In the previous surveys the expert estimates were much higher than the official figures.

The experts think that the producer price index averaged 102.7 in 1998. An increase to 103.7 percent is predicted for 1999.

The level of unemployment (excluding rural areas) was believed to stand at 10.5 percent (the official estimate based on the data of the Labour Exchange was 6.4 percent). The experts polled believe that unemployment will rise to 11.7 (the official prognosis is 7.3 percent). Despite a slight decline, the difference between the expert and official estimates is still 1.5 times.

Most of the experts polled (72 percent, or somewhat more than in the previous poll) forecast that the exchange rate of litas to US dollar will remain the same.

Monthly earnings after tax in 1998 were estimated at an average of 955 litas (excluding rural areas) (the official indicator was 753 litas). The experts think that average earnings will grow in 1999 to an average level of 1,041 litas (the official prognosis is 897 litas).

Monthly household income per household member was estimated to be 821 litas in cities, 582 litas in towns, and 330 litas in rural areas (the respective official estimates were 483 litas, 365 litas, and 252 litas). The experts put the 1999 forecasts at 883 litas, 629 litas, and 351 litas respectively.

The share of earnings in household income was estimated at 85 percent for cities, 78 percent for towns, and 42 percent for rural areas. The forecasts for 1999 are 86 percent, 79 percent, and 42 percent respectively.

The experts put household savings in 1998 at an average of 328 litas in cities, 210 percent in towns, and 89 litas in rural areas. The forecasts for 1999 are 357 litas, 233 litas, and 100 litas respectively. Household investments were estimated at 280 litas in cities, 175 litas in towns, and 65 litas in rural areas. Just as with household savings, a small increase is expected in 1999 for household investments in 1999, which are forecast at 315 litas for cities, 197 litas for towns, and 75 litas for rural areas.

The profit margin of Lithuanian enterprises was believed to be 8.6 percent in 1998. A fall to 8 percent is predicted for 1999. Return on equity was put at 15.1 percent and forecast to be 14.2 percent in 1999. Invested profits were estimated to average 57 percent in 1998. A rise to 60 percent is anticipated in 1999.

The annual interest rate on 6 to 12 month loans is expected to remain 14.0 percent for litas and to constitute 4.6 percent for US dollars in 1999 (in 1998 the average interest rates on loans were 6.5 and 4.1 percent respectively according to the Bank of Lithuania).

As the experts polled indicated, the annual interest rate on 1 to 3 month deposits will stand at 6.4 percent for litas and 4.6 percent for US dollars in 1999 (the respective average interest rates in 1998 were 6.5 and 4.1 percent according to the Bank of Lithuania).

The experts predict that the interest rate on one year T-bills will average 11.5 percent in 1999.

Finally, the survey participants estimated that the share of non-bank loans averaged 20.3 of all loans in 1998. The forecast for 1999 is somewhat smaller, 18.5 percent.

Conclusions

The main differences which were discovered between the estimates reported by the experts polled and official statistics in the previous surveys remain. Still, these disparities have narrowed in some cases, particularly with regard to GDP growth. It should be noted that after the official estimate of GDP growth in 1998 had been revised several times to reflect the impact of the economic crisis in Russia on the Lithuanian economy, it became almost equal to the figures obtained from the experts polled by LFMI. The expert estimates of inflation continue to be higher than the official statistics. The level of unemployment as indicated by the experts polled also remains twice as high as reported by the Labour Exchange. The size of the shadow economy remains quite large. This is also illustrated by the estimates of unrecorded trade, which government institutions are not able to analyse due to its nature. It should be noted that the government does not make regular assessments, or forecasts, of certain indicators, such as the share of non-bank loans or invested profits.

Just as in the previous polls, the experts produced higher estimates of household income and personal earnings than the Department of Statistics. True, the gap in the case of earnings has narrowed and the official indicators are now similar to the figures reported by the experts. The 1999 forecasts of earnings made by the survey participants exceed the official ones (a revised forecast from the Economic Ministry) by only 16 percent. The differences remain fairly large in the case of household income.

As we generalise the estimates obtained from the experts and compare them with the previous survey results and official indicators, we may discover several trends. For one thing, the research suggests that the expert polled are quite accurate in assessing on-going economic processes. Given that they tend to detect the signs of economic changes and trends in the internal and external economic environment faster than the government, market experts are able to predict them much in advance. This was illustrated by the evaluation of the impact of the Russian crisis on Lithuania as well as the estimates reported by the experts in the second and third surveys. All this suggests that the opinion of market experts should receive proper attention. Second, the results of the three surveys show consistency and no demonstrable leaps in the estimates produced by the experts. This is also indicative of accuracy in assessing economic processes. Finally, the situation regarding the supply of economic information highlights a pressing need for alternative sources of information. Some indicators are neither assessed nor forecast by government institutions. Official prognoses are in many cases delayed, while their basis is frequently ambiguous. The study presented by the LFMI is significant in that it contributes to the diversification of the sources of economic information and discussions on economic policy issues.

This as well as the previous two editions are available at the Lithuanian Free Market Institute, Birutės 56, 2004 Vilnius. If you have any comments or questions, please contact Guoda Steponavičienė (guoda@lrinka.lt) or Ramūnas Vilpišauskas (ramunas@lrinka.lt), tel: 722 584, fax: 721 279.