The interviews for the December 2007 edition of the Bank of Italy-Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 3 December 2007 and 4 January 2008. A total of 467 companies with at least 50 employees participated in the survey, 257 of which operate in the industrial sector and 210 in the services sector.
Main results
Expectations of consumer price inflation in Italy
Inflation is expected to be 2.6 per cent over the next 12 months, an increase vis-à-vis the 2.1 per cent recorded in September 2007. In December 2007, the rate of consumer price inflation was 2.8 per cent, 0.6 percentage points higher than companies expected in December 2006.
Assessment of the general economic situation
The companies’ assessments of recent trends are still mainly negative: 52.7 per cent of companies think that the general economic situation in Italy has worsened compared with three months earlier, 42.3 per cent think it is unchanged, and 5.1 per cent think it has improved. The gap between negative and positive assessments has widened compared with the previous quarter, from –31.8 to –47.6 per cent (Table 2). The balance of opinion, which was negative in all groups of companies, was however less pessimistic in the Centre (–38.1 per cent), and among those with at least 1,000 employees (–33 per cent), but more negative in the North-East (–54.3 per cent) and in the South and Islands (–55.7 per cent).
Business environment
Although 61.8 per cent of companies believe that their business environment will remain unchanged in the next three months, the share of those who expect an improvement is considerably less than the share of those who expect the situation to worsen (8.5 per cent compared with 29.7 per cent). The differential between the two options has increased since the last survey (–21.2 per cent compared with –8.5 per cent in September).
As in the past, companies view the effects of foreign demand as generally positive (assessed as 0.6 on a scale of –3 to 3), while they think that the effects of increases in labour costs and raw materials prices will have a negative impact on their business in the next quarter (–0.8 and –1.2 respectively), worse than in September 2007.
Expectations with regard to the business situation in the next three years remain positive and substantially unchanged compared with September: 42.9 per cent of companies expect an improvement (compared with 42.5 per cent in September), while 24.9 per cent expect conditions to worsen (22 per cent in September). Balances are positive across all categories, and relatively more favourable in the industrial sector (48.6 per cent gave positive responses against 25.6 per cent negative responses), medium-sized firms (44.9 per cent against 21.4 per cent) and the Centre (56.9 per cent against 19.4 per cent).
Investment environment
Some 56.5 per cent of companies judge that the investment environment has remained unchanged in the last three months (compared with 57.9 per cent in the last survey). Nevertheless, the balance of opinion between optimistic and pessimistic views is still negative and is more pessimistic than in the previous quarter (–31.3 percentage points against –27.8). The balance of opinion is a little less negative among companies in the South and Islands (–18.7).
Employment
With regard to total employment, three-month forecasts of an increase outweigh those of a reduction (23.7 per cent compared with 16.4 per cent). The balance of opinion has remained virtually unchanged since September. Permanent employment shows a positive balance, (3.6 percentage points) greater than the balance related to fixed-term employment (1.9 percentage points), although the differential of 1.7 percentage points between the two values has narrowed since the last survey when it was 6.1 percentage points.
Changes in companies’ sales prices
On average, companies reported a 1.7 per cent increase in their sales prices in the past 12 months, 0.4 percentage points less than they expected in December 2006. For the next year, they expect a rise of 1.7 percentage points. Companies in the South and those in the industry sector have experienced greater increases in their sales prices in the last 12 months (2.7 per cent and 2.2 per cent respectively) and are also forecasting greater increases than the other categories in the next twelve months (2.5 per cent and 2.3 per cent).
Companies report that tensions in pricing can be explained mainly by changes in raw materials prices and, to a lesser extent, changes in the exchange rate of the euro.
There is a general expectation among companies that their prices will increase by less than the general index in the course of the next 12 months. The differential vis-à-vis forecasts for December 2008 is 0.9 percentage points. The difference between the annual inflation rate reported in December 2007 and the price increases reported by companies over the same time period is 1.1 percentage points.
