The 31st Survey of the Lithuanian Economy

Lithuanian Free Market Institute presents the thirty first Survey of Lithuanian Economy. This survey first time was launched back in 1997. During the period we have realized, that new and important topics emerge in Lithuanian and world economics. Therefore, a more indepth analysis must be made. From now on the Survey of the Lithuanian Economy will have a leading topic, meaning that in every new survey important economic issues for Lithuania and the rest of the world will be covered. The topic of this survey is – business cycles. In the first and second parts of the survey the causes of business cycle and its impact on European and Lithuanian economy will be presented.

In the third part of the Survey of Lithuanian Economy evaluations of the main economic indicators of 2012 and forecasts for 2013 based on the insights of the market participants are presented. Moreover, an overview of factors, which could have had an impact on their evaluations and expectations are provided. Evaluations and forecasts of the Lithuanian economic indicators are based on market consensus paradigm which is based on rational expectations theory1. This theory claims that an economic variable can be associated with observable
processes and that market actors do their evaluations and forecasts which are related to these processes using the information available to them. The more there is information available to the market participants the more reliable evaluations and forecasts become. Supposedly, the most available information about economic processes is held by people, who use it directly in their daily activities; their successful performance reflects their capabilities to process information.

Fifty five experts have participated in the survey. It is based on a non-representative poll of market participants – the experts of the survey are not chosen
according to activities, companies or regions, the participants were chose from successful companies. The respondents are asked to provide information not about their own companies or industries but to estimate indicators reflecting the country’s general situation with all the available information they have. 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.

• Lithuanian economic growth in 2013 will be similar to 2012 and should be around 3.4%. Unemployment levels by the end of 2013 should be around 12%. Consumer price growth will increase in 2013 at a rate of 3-4%.
• According to the experts, the greatest uncertainty and risk sources for Lithuanian businesses in 2013 are decisions made by government regarding business and investment environment and internal economic problems.
• Slowly declining unemployment rate will be shrinking even more slowly, because of the minimum wage increase. According to the survey results, increase in the minimum wage in the first half of 2013 will result in around 14 thousand people losing their jobs. This will raise unemployment rate by 1%.
• Lithuania’s foreign trade volume will continue to grow at a similar pace in 2013. Import and export growth should reach 10% and 11%.
• Shadow economy as a share of GDP continues to decline, but slowly. Shadow economy in 2013 will be 26% as a share of GDP.
• Illegally paid wages are widely spread among Lithuanian business enterprises: around one-third (31%) of enterprises employ people, who are paid a share of their earnings in an “envelope”. Around one tenth (11%) of Lithuanian enterprises employ workers illegally, i.e. without labour agreements. As a most important factor for “envelope” wages, market participants criticized excessive taxation on labour, meaning that companies could not sustain their activities if they had to pay the wages legally (35%).
• According to the survey results the growth rate of the average personal earnings will increase in 2013. Forecasted growth rate of the average personal earnings should grow twice as fast as in 2012 or around 8%. Nominal (not adjusted to inflation) average personal earnings in 2013 should be 1797 Lt and reach the highest pre-crisis level of 2008.