The interviews for the September 2008 edition of the Bank of Italy − Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 2 and 22 September 2008. A total of 480 companies with at least 50 employees participated in the survey, 290 of which operate in the industrial sector and 190 in the services sector.
Main Findings
Expectations of consumer price inflation in Italy
Inflation is expected to be 3.7 per cent over the next 12 months, up from the 3.5 per cent recorded last June. In September 2008, the consumer price inflation was 3.7 per cent, 1.6 percentage points higher than companies expected in September 2007.
Assessment of the economic situation
The companies’ assessments of recent trends are still mostly negative: 56.1 per cent of the companies interviewed think that the economic situation in Italy is worse than three months ago, against 40.4 per cent that think there has been no change. The gap between positive and negative assessments has widened by 8.5 percentage points, from –44.1 to –52.6 per cent. The share of companies that think the situation has worsened is larger in the service sector and in the North.
Business climate
Some 55.8 per cent of companies think that the business climate will remain unchanged in the next three months (Table 5), a smaller percentage than in the last survey (65.2 per cent). The share of those expecting the situation to worsen has risen from 29.2 to 38 per cent, while the share of those expecting an improvement is largely stable (6.2 per cent against 5.6 per cent in the previous survey). Pessimism is more widespread among service companies, 47.1 per cent of which expect a deterioration, against only 4.9 per cent expecting an improvement.
As in the previous survey, companies’ economic prospects are affected above all by expectations of an increase in the prices of raw materials and changes in labour costs and credit conditions.
Expectations with regard to the business situation in the next three years are still positive and show a slight improvement on the previous quarter: 48.6 per cent of companies expect an improvement, compared with 47.7 per cent in June, and 20.4 per cent expect conditions to worsen, against 23.4 per cent in June (Table 8). Large companies show the greatest share of those expecting an improvement in the next three years (66.2 per cent), while companies expecting a deterioration are located predominantly in the Centre (32.6 per cent).
Investment climate
Some 38.4 per cent of companies judge that the investment climate has worsened in the last three months, 57.9 per cent consider it unchanged and the remaining 3.7 per cent think it has improved. Fewer companies see an improvement in conditions compared with the previous quarter, while a larger proportion believe the situation is unchanged. Opinions are particularly negative among large companies, 58.9 per cent of which judge that the climate has deteriorated.
Credit conditions
For 71.8 per cent of companies credit conditions have not changed since June 2008. Access to credit has become more difficult than in the previous quarter according to 26.7 per cent of companies (compared with 22.7 per cent in the last survey); only 1.5 per cent think that credit conditions have improved (compared with 3 per cent in March). The gap between positive and negative responses from companies is –25.2 percentage points overall and is highest among companies in the North-East (–36.3 points) and with 1,000 employees and over (−30.1 percentage points).
The share of companies reporting a deterioration in credit conditions is higher among those that have approached the banking sector for new or additional credit (62.9 per cent compared with 26.7 per cent for the whole sample). In the previous survey the proportions were 51.8 and 22.7 per cent respectively.
Employment situation
The share of companies expecting to reduce their total workforce in the next three months outweighs the share forecasting an increase (25.4 per cent and 12.7 per cent respectively). The balance of forecasts of an increase and a reduction is still negative and has deteriorated since June 2008 (−12.7 against –5.7 percentage points).
Changes in companies’ selling prices
On average, companies report a 2.9 per cent increase in their selling prices in the past 12 months, 0.7 percentage points more than they predicted in September 2007 (Table 13). For the next year, they expect a rise of 2.4 per cent, which is lower than in the last survey when the corresponding figure was 2.7 per cent. Companies report that tensions in pricing will be caused mainly by changes in labour costs and raw material prices; competitors’ pricing will tend to drive prices down.
The differential between the expected increase in the general price index for September 2009 and expected changes in companies’ own prices is 1.3 percentage points (Figure 3). The differential between the annual rate of inflation observed in September 2008 and the price increases reported by companies for the same time period is 0.8 percentage points.
