Lithuanian Business Fears Problems in Eurozone

photo: Ramunas Geciauskas

A survey of the Lithuanian economy conducted by the Lithuanian Free Market Institute (LFMI) shows that eurozone problems do not leave anybody cold. Lithuania failed to join the eurozone in 2007 because it missed the inflation criteria by only 0.06 per cent. At the time, it was considered a big political failure. However, given the present vulnerability of the eurozone, it may look like a windfall success. The national currency, the litas, is pegged to the euro under currency board arrangement, so the litas remains very closely linked to the euro.

In the LFMI survey, first launched back in 1997, estimates and forecasts of the main economic indicators are provided by experts – owners and chief executives of businesses from various industries, heads of company accounting and financial departments, and economic and financial analysts. In contrast to the official survey, this is not a representative sample that provides official statistics. Instead, it is based on the principle of rational expectations, and has proved itself to be beneficial to the users of aggregated statistical data. Individuals who are actively involved in the market and analyse its trends have the most information about economic processes and use all the information available to them in their professional activities.

photo: Ramunas Geciauskas

Seeking to elicit the causes of market participants’ expectations (which appeared to have deteriorated, according to the survey), this time we asked our respondents to indicate the most significant sources of uncertainty and risk for the Lithuanian business sector in 2012. Those experts polled could choose one or two answers from the list.

Two thirds of respondents think that the euro problems and the related risk of an export slump are the major sources of uncertainty and risk for companies today. Worsening forecasts for the growth of foreign trade in 2012 also reflect this risk. Import growth has been predicted to reduce from 14 to 12 per cent in 2012. Six months ago, exports were expected to rise by 14 per cent in 2012, but in the current survey, the forecast was cut to 11 per cent. One third of Lithuanian exports is directed towards the eurozone countries, and the domestic market is shrinking due to emigration.

Twenty-nine per cent of those polled consider potential changes (increases) in taxes to be a serious source of uncertainty. The remaining 25 per cent reported that the election year 2012 and the populist decisions of politicians would be a significant source of disquiet. Only 10 per cent of respondents indicated a contraction of the domestic market and shrinkage in domestic consumption as the main sources of incertitude for business.

For more data from the survey visit: 29th Survey of the Lithuanian Economy.