The interviews for the March 2008 edition of the Bank of Italy−Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 3 and 28 March 2008. A total of 477 companies with at least 50 employees participated in the survey, 277 of which operate in the industrial sector and 200 in the services sector.
Main findings
Expectations of consumer price inflation in Italy
Inflation is expected to be 3.3 per cent over the next 12 months, an increase vis-à-vis the 2.6 per cent recorded in December 2007. In March 2008, the rate of consumer price inflation was 3.6 per cent, 1.5 percentage points higher than companies expected in March 2007.
Assessment of the general economic situation
The companies’ assessments of recent trends are still mainly negative: 72.6 per cent of companies think that the general economic situation in Italy has worsened compared with three months earlier, 26.1 per cent consider it is unchanged, and 1.3 per cent find it has improved. The gap between positive and negative assessments has widened considerably compared with the previous quarter, the balance falling from –47.6 to –71.3 per cent. The results are fairly similar for all sectors and geographical areas.
Some 56.7 per cent of companies think the likelihood of an improvement in the economic situation in the next three months is zero (compared with 44.4 per cent last December). Only 12.6 per cent of companies think there is more than a one in four chance of an improvement. Optimistic judgments are relatively more common among large companies, in the North-West, in the Centre and in the services sector.
Business climate
Although 53.3 per cent of companies think their business climate will remain unchanged in the next three months, the share of those who expect an improvement is considerably smaller than the share of those who expect the situation to worsen (10.1 per cent compared with 36.6 per cent). Here also, the gap between the two options has widened since the last survey, the balance falling from −21.2 to −26.5 percentage points.
Above all, increases in raw materials prices and, to a lesser extent, changes in labour costs and credit conditions are negatively affecting companies’ economic prospects.
Expectations with regard to the business situation in the next three years are more frequently positive: 38.4 per cent of companies expect an improvement while 26.8 per cent expect conditions to worsen. The balance of positive and negative responses has nevertheless fallen since December 2007 from 18 to 11.6 percentage points.
Investment climate
Some 47.5 per cent of companies judge that the investment climate has worsened in the last three months, 48.1 per cent consider it unchanged while the remaining 4.4 per cent think it has improved. The overall picture has deteriorated compared with the previous survey when the figures were 37.4 per cent, 56.5 per cent and 6.1 per cent, respectively.
Credit conditions
Access to credit has become more difficult than in the previous quarter according to 19.1 per cent of companies; only 3.5 per cent think that credit conditions have improved. The gap between positive and negative responses from companies is more marked in the South (a balance of −32.4 percentage points), less so in the North (−12.1 per cent).
In relation to the whole sample, the set of companies expressing their opinion following requests for new credit lines or extensions of existing ones, more frequently report either a deterioration in conditions compared with the past (39.8 per cent), or an improvement (10.1 per cent). The balance between the latters’ positive and negative assessments (−29.7 per cent) is therefore more marked than that for the sample as a whole (−15.6 per cent).
When assessing these results it should however be noted that this section on credit conditions has been included for the first time in the current survey and so a reliable evaluation of market trends will only be possible when responses can be compared over time.
Employment rate
With regard to total employment, three-month forecasts of an increase outweigh those of a reduction (21.7 per cent and 14.8 per cent respectively). The balance of forecasts of an increase and a decrease is slightly less than in December 2007 (6.9 compared with 7.3 percentage points).
Changes in companies’ sales prices
On average, companies reported a 2.2 per cent increase in their sales prices in the past 12 months, 0.5 percentage points more than they expected in March 2007. For the next year, they expect a rise of 1.7 percentage points, in line with the previous survey result. Companies report that tensions in pricing will be caused mainly by changes in raw materials prices while fluctuations in demand and labour cost are likely to have only minimal impact.
In general, companies usually expect 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 March 2009 is 1.6 percentage points. The difference between the annual inflation rate observed in March 2008 and the price increases reported by companies over the same time period is 1.4 percentage points (compared with 1.1 percentage points in December).
