The Lithuanian Free Market Institute (LFMI) presents its twentieth survey of the Lithuanian economy, covering updated forecasts of economic indicators for 2007 and forecasts for 2008. This survey was carried out in July through August 2007.

 

LFMI launched the survey of economic variables in 1997. The survey is based on the expert consensus paradigm originating from the theory of rational expectations.[1] This theory states that economic indicators can be related to certain processes in the economy, and market participants use all available information to make estimates and forecasts concerning these processes. The more information market participants possess, the more credible their estimates and forecasts are. It is likely that individuals who are engaged in day-to-day business activities have the most information about the economy, while their successful performance reflects their ability to process this information.

 

The main goals of the LFMI survey are to provide estimates and forecasts of economic variables in Lithuania based on the opinion of market participants and to analyse factors that have an influence on these estimates and forecasts. The survey is also aimed at comparing the estimates of market participants with official statistics and data from other sources and to offer interpretations of the most distinct differences.

 

The methodology used in the LFMI survey differs from the methodology used by official institutions, so our aim is to provide alternative estimates of economic indicators. There are three main differences between the LFMI survey and official statistics. First, LFMI survey participants present economic information they have themselves generalised, whereas the Lithuanian Department of Statistics (Statistics Lithuania) collects unique information from the business sector and generalises it by statistical methods. Second, the LFMI survey depends on benevolent assessment of market processes by economic experts. Statistics Lithuania collects detailed mandatory reports from enterprises (households can refuse to participate in official surveys). Third, LFMI has chosen economic indicators and defined them so as to make them useful in planning a business activity. Statistics Lithuania uses an established methodology to investigate an established set of variables. In addition to that, LFMI presents comprehensive information from its surveys promptly and conveniently. These differences make us believe that the results of LFMI surveys have a practical value for market participants.

 

The forecasts of the survey participants are presented in four chapters. Chapter 1 is devoted to macroeconomic indicators: the growth of gross domestic product (GDP), the share of the shadow economy in GDP, import and export growth, changes in consumer and producer prices, the rate of unemployment, and the share of the tax burden in GDP. Chapter 2 covers household indicators, including personal earnings, household income, household savings and household investments. Chapter 3 gives an overview of corporate indicators, including the profit margin, return on equity, reinvested profits and the share of companies’ expenses on science and innovation. Chapter 4 analyses interest rates on loans. Generalised results of the survey are presented in tables at the end of each chapter of the study.

 

Forty-five experts participated in the current survey. The LFMI survey is not representative. We do not aim to have a representation of specific sectors of the economy or regions or enterprises. Our aim is to interview economic experts who represent successfully operating companies. The respondents are asked not to provide information about their own companies or industries but to estimate indicators reflecting the country’s general economic situation on the basis of all available information. Survey participants are requested to focus only on variables that they think they are competent enough to appraise. Most of the respondents in the current survey took part in the previous stages of the project. The list of survey participants is presented at the end of the study.

 

We compare the estimates and forecasts of market participants with the data of official national and international institutions, plus private financial companies. In comparing the different sources, we look at the differences in the definitions used. Official institutions do not measure, or measure only irregularly, five of the economic variables covered in the LFMI survey – the shadow economy, household savings, household investments, reinvested profits, expenses on science and innovation. In addition to that, official institutions do not forecast some of the indicators analysed in the LFMI survey. The results of the LFMI surveys are unique in this respect.

 

As in the previous editions, we compare the estimates and forecasts of the survey experts not only with other sources but also with their ex ante forecasts. The study also analyses patterns and trends of expert estimates and forecasts over time based on the previous nineteen surveys.

 

LFMI expresses its gratitude to the survey participants, to everybody who provided financial support and helped carry out this and previous surveys, and all those who have provided comments and remarks on the study.

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