A Survey of Macroeconomic Variables in Lithuania
Estimates for the first half of 1998 and forecasts for mid-1998 to mid-1999
The Lithuanian Free Market Institute (LFMI) launched a survey of macroeconomic variables in 1997. The first survey, which was conducted in November 1997, covered twelve macroeconomic variables. Forty-eight survey participants reported estimates of these variables for 1997 and their forecasts for 1998. The results of the survey were presented in a 120-page study, "A Survey of Macroeconomic Variables in Lithuania 1997/1998," in Lithuanian and English.
Today we would like to present the second phase of the survey, which comprised estimates for the first half of 1998 and forecasts for mid-1999. The survey was carried out in June 1998 and targeted 55 respondents. Survey findings were presented in a 130-page bilingual study, "A Survey of Macroeconomic Variables in Lithuania 1998/1999 (1)." The current survey covered the following indicators: GDP growth; inflation; the Producer Price Index; the shadow economy; unemployment; earnings; household incomes, savings and investments; enterprises' profit margin, return on equity, and invested profits; interest on loans and deposits; and the expected exchange rate of litas to US dollars.
The methodology and goals of the LFMI's survey were elucidated in the first publication. Briefly, the survey is based on the expert consensus paradigm. The aim is to estimate main macroeconomic variables by applying methods other than those used by official statistics. The study presents the definitions of the indicators under analysis as well as official estimates and values obtained through the expert survey. The study goes on to analyse official and alternative indicators and to interpret differences between them. LFMI did not intend to attach statistical characteristics to the survey. The experts were selected based on how well they understand Lithuania's economic situation and regardless of the branch of the economy, the size of the enterprise and the geographical region they come from.
The project was funded by Vilnius Bank, Omnitel, Vilfima, and Balticum Management.
The Main Survey Findings
In the LFMI's survey, GDP growth in the first half of 1998 was estimated at an average of 5 percent (official statistics are 7 percent). The average forecast for mid-1998 to mid-1999 was 5.7 percent. In the previous survey, the 1998 GDP growth was expected to reach 5.8 percent.
Inflation in the first half of 1998 was estimated to be 4.6 percent (official sources reported 2.6 percent). The forecasts averaged 9.3 percent for 1998 and 8.5 percent for mid-1998 to mid-1999.
The experts polled believe that the shadow economy accounted for 27percent of GDP in the first half of 1998. The same level was reported for 1997. Participants in the first survey predicted that in 1998 the shadow economy would decline down to 22 percent. The prognosis for mid-1998 to mid-1999 was 25.5 percent. The estimates of unrecorded trade in the first half of 1998 were as follows: 22 percent of unrecorded imports and 16 percent of unrecorded exports. Over the next year the scope of the shadow economy is expected to drop by some two percentage points.
The estimates of unemployment in cities and towns in the first half of 1998 averaged 10.2 percent (8.6 percent in cities and 12.5 percent in towns). The experts predict that the level of unemployment will grow by 0.3 percentage points in cities and towns alike. The rate of unemployment in rural areas was not analysed in this survey.
Monthly earnings after tax were estimated at an average of 916 litas in both cities and towns (1,030 litas in cities and 759 litas in towns). The Department of Statistics showed it to be 747 litas in mid-1998. The experts think that in mid-1999 average monthly earnings will stand at 1,154 litas in cities and 843 in towns. The forecasts for 1998 released in the first survey were slightly higher than the estimates reported during this survey.
Monthly household incomes per household member were estimated to be 610 litas in the first half of 1998 (official sources indicated 327 litas). The forecast for mid-1999 is 670 litas.
The profit margin of Lithuanian enterprises in the first half of 1998 was estimated to be 9.8 percent. Return on equity was put at 15 percent (according to the National Stock Exchange, the profit margin of the companies on the Official and Current Lists was 9.7 percent, while return on equity was 13.8 percent). For mid-1999, the experts polled predict a 10-percent profit margin and a 14.7-percent return on equity. The 1998 forecasts reported during the first survey were 12 percent for profit margin and 17.8 percent for return on equity.
Enterprises' invested profits were estimated to constitute an average of 55 percent in mid-1998. The forecast for mid-1999 was 56 percent. The 1998 prognosis reported by the survey participants in 1997 was 55 percent.
A total of 68 percent of those polled think that the exchange rate of litas to US dollar will remain the same, 4 to 1. The average estimate was 4.2 to 1.
Conclusions
The main differences between the expert estimates and official statistics were disclosed already in the first survey. The experts polled were more cautious than official statistics about macroeconomic indicators such as GDP growth, inflation, unemployment, and the shadow economy. In late 1997, for example, official sources showed the 1997 GDP growth to be 6 percent, while the experts put it at 4.95 percent. The Department of Statistics reported a 7-percent GDP growth in the first half of 1998, while the experts estimated it to be at 5 percent. The survey participants think that inflation in 1997 was 11 percent, while the official statistics were 8.4 percent. The experts polled reported almost two times higher indicators of inflation in the first half of 1998 than the Department of Statistics claimed, 4.6 percent and 2.6 percent respectively.
At the same time the experts produced higher estimates of household and enterprise indicators (profit margin, return on equity, and investments) than the official statistics. For example, average household incomes as estimated by the experts polled were 1.9 times bigger than reported by the Department of Statistics. The experts' estimates of personal earnings were higher, too.
Despite the fact that in the spring of 1998 both the Lithuanian authorities and foreign experts were particularly optimistic about Lithuania's macroeconomic situation, local experts were fairly moderate in their views on the improvement of main macroeconomic indicators. This suggests that they took into account those adverse factors that were not articulated publicly at that time. One of them was the latent crisis in Russia. When the expert survey was being conducted in June, evidence of Russia's crisis was only beginning to come out. It is very likely therefore that the economic collapse was regarded only as a possibility rather than a fact. In the autumn, Lithuanian authorities began to adjust official forecasts of GDP growth, putting them at a similar level to that reported by LFMI's survey participants.
