The Lithuanian Free Market Institute (LFMI) presents the results of a sixth survey of macroeconomic variables in Lithuania, covering estimates for the first half of 2000 and forecasts for the first half of 2001. The LFMI survey of macroeconomic variables was launched in 1997 and is based on the estimates and forecasts of market participants. Approximately 50 experts took part in each stage of the survey. The data obtained from the expert survey was systematised and analysed in comparison with available official statistics and presented in each survey.

The main goals of the survey are to provide estimates of economic indicators that are based on the opinion of market participants (experts) and used in planning business activity; to provide an opportunity to compare these estimates with official statistics; and to offer interpretations of the most distinct differences. The survey of macroeconomic variables is based on the expert consensus paradigm originating from the theory of rational expectations.

The survey participants were asked to evaluate the following indicators: the growth of gross domestic product, the share of the 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 imports and exports, the profit margin, return on equity, invested profits, nominal interest rates on loans and deposits, the share of non-bank loans in the credit market, the tax burden, the expected interest rate on government securities, and the expected exchange rate of the litas to the U.S. dollar. The study is written in Lithuanian and English. Vilnius Bank, Omnitel, and Lietuvos Telekomas funded the project.

The Main Survey Findings

According to the expert estimates, the Lithuanian economy rose slightly in early 2000; however, the forecasts for economic growth during the next year are very cautious.

The experts polled by LFMI estimated gross domestic product in the first half of 2000 to be 1.4 percent higher than in the first half of 1999. Taking into consideration the experts' valuations that the 1999 GDP growth declined by 1.8 percent and that in 2000 GDP will grow by 1.8 percent and by 2.3 percent from mid-2000 to mid-2001, it may be concluded that the start of 2000 was a turning point from an economic decline to an economic upturn. Again, the expert estimates and forecasts remained more moderate than the official statistics.

Regarding personal earnings and household income the experts discern downward trends. They think that since mid-1999 both indicators have been decreasing constantly. However, they forecast that, until mid-2001, average personal earnings will continue to rise and reach the level of late 1999. Although household income is forecast to increase, this indicator will not be the same as in late 1999. It should be noted that changes in personal earnings, household income and the level of unemployment are slower than those in GDP growth: after a drop in GDP growth, these indicators remain at the previous level for some time, but after an increase in GDP growth, they continue falling for some time.

The LFMI survey respondents think that the share of the shadow economy in GDP and the share of unrecorded foreign trade in total foreign trade have stabilised. The shadow economy accounts for about 23 percent of GDP, unrecorded imports for about 20 percent of total imports, and unrecorded exports for about 12 percent of total exports.

According to the experts, the level of inflation averaged 2 percent in the first half of 2000 and should average 3.4 percent until mid-2001. Even though the experts forecast an increase in prices until mid-2001, this time their estimates and prognoses for inflation are lower than in the prior polls. The LFMI respondents continue to think that inflation in the country is higher than official sources report, however, this difference has noticeably decreased. This is most likely related to the revised composition of the basket of goods and services used by the LDS, in which the share of services of still regulated infrastructure and fuel - the price of which has been rising - was increased.

According to the expert estimates, the producer price index in the first half of 2000 was 101.7 and will rise to 103.4 over the year until mid-2001. The PPI is going up largely because of surging prices in the energy sector and oil products indispensable to the industry.

The experts estimated that during the first half of 2000 the level of unemployment rose by 1.7 percent and stood at 14.1 percent but until mid-2001 unemployment would not increase. According to data from the Labour Exchange, the level of unemployment was 11.1 percent in June 2000 and according to the results of the LDS' random surveys of the labour force unemployment hit 14.6 percent in the second quarter. The LDS data and the expert estimates are very similar, bearing in mind that the LFMI survey does not cover unemployment in rural areas. Figures reported by the Labour Exchange, although they have markedly increased of late, still remain lower than the estimates of unemployment obtained from surveys. The LFMI respondents forecast that the level of unemployment will remain stable in the coming year, while the Ministry of Economy projects that it will fall.

According to the expert estimates, profit margin and return on equity continued to decline in the first half of 2000. The average profit margin was 4.6 percent and return on equity averaged 9.7 percent. In the period from mid-2000 to mid-2001, the experts project a slight increase in the average profit margin and return on equity. The LFMI respondents think that the average share of invested profits increased in the first half of 2000 and will continue to do so until mid-2001 (up to 62 percent). In this survey, the estimate of the average share of invested profits and the one-year forecast are the highest since the first stage of the LFMI survey (1997).

As in the prior surveys, most of the survey participants forecast that the exchange rate of the litas to the US dollar will remain unchanged until mid-2001. The experts think that loans both in litas and in US dollars are getting cheaper and that this trend will continue until mid-2001. Interest rates on deposits will drop by only 0.1 percentage point. Even though interest rates are falling slightly, the opinion of the non-banking sector is that they are inadequately high if compared to the financial potential of enterprises and residents. General crediting conditions in Lithuania may improve if competition between banks and other credit institutions increases, more forms of crediting appear, and the supply of state investment instruments diminishes. Until mid-2001, the experts forecast lower interest rates on one-year T-bills than before; however, the forecast for average yield is significantly higher than interest rates on the market in autumn 2000. It should be noted that the experts believed that interest rates on government securities would decline but they did not expect a plummet as dramatic as in the first half of 2000.

This as well as the previous five editions are available at the Lithuanian Free Market Institute, Birutės 56, 2004 Vilnius (for order form, click here). If you have any comments or questions, please contact Guoda Steponavičienė (Guoda@FreeMa.org) or Ramūnas Vilpišauskas (Ramunas@FreeMa.org), tel: 722 584, fax: 721 279.