The interviews for the Banca d’Italia – Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 3 and 23 June 2009. A total of 492 companies with at least 50 employees participated, 293 of which operate in the industrial sector and 199 in the services sector.
Main Findings
Expectations of consumer price inflation in Italy a nd change in companies’ selling prices
Inflation is expected to be 1.4 per cent over the next 12 months, unchanged from the forecasts made in March and again higher than the estimates of professional forecasters. Expectations for the next 24 months, which are recorded for the first time in the present survey, put inflation at 1.9 per cent, in line with the European Central Bank’s target for price stability.
In June this year consumer price inflation was 0.6 per cent, that is almost 3 percentage points less than forecast a year earlier.
Businesses report they have lowered their selling prices by 0.4 per cent in the 12 months to June, in sharp contrast with the 2.7 per cent increase expected a year earlier. The reduction was larger in the case of industrial companies (0.6 per cent) than for service companies (0.3 per cent) and, in geographical terms, was the result of a 1.2 per cent increase in selling prices in the North-East and reductions of between 0.5 and 1.4 per cent in the rest of the country. For the next twelve months, a rise of 0.8 per cent is projected, which is slightly higher than the expectations recorded in the March survey. Prices of raw materials are among the main factors driving up selling prices, while competitors’ pricing policies tend to drive them down.
Assessment of the economic situation
The deterioration in the general economic situation, which companies had highlighted in previous surveys, appears almost to have come to a halt: according to around half the respondents there has been no change in the past three months, although opinions that the situation has improved are outnumbered by impressions of a deterioration by 26.4 percentage points, compared with 87.6 points in March this year. The companies interviewed think that the likelihood of the general outlook improving over the next three months is now slightly greater: the proportion of those that do not entirely rule out an improvement has risen for the second time running, from 32.4 to 53.8 per cent, while those putting the likelihood of improvement at over 25 per cent has risen from 7 per cent in March to 10.7 per cent. Expectations are less pessimistic among companies in the North-West and those with at least 1,000 employees.
Business climate
In line with the recent evidence of stabilization of other business outlook indicators, signs of an improvement in the business situation that had emerged in March were confirmed the following month. The share of companies expecting their situation to worsen in the next three months has dropped from 60.2 to 26.3 per cent, while those forecasting an improvement have risen from 3.7 to 10.2 per cent. However, there is still considerable uncertainty over the short term, and indeed a large proportion of companies (63.5 per cent) foresee no change over the next three months. While expectations of a contraction in demand have diminished considerably, the short-term outlook still reflects the difficulties of accessing credit and high labour costs. Mild concern regarding the trend in raw materials prices compounds the situation.
Expectations with regard to the business situation over the next three years have been improving for the past year, apart from a slight decline in December. In June, the share of companies expecting a deterioration decreased from 21.1 to 12.3 per cent, leading to an equivalent increase in expectations of improvement, now reported by 69 per cent of respondents. The balance between positive and negative assessments is more markedly optimistic in the service sector and among companies in the South and Islands.
Investment climate
The companies that believe the investment climate has not changed in the last three months are a growing majority and now represent 59.2 per cent (Table 9). The balance between those reporting an improvement and a deterioration has thus gone from –44.4 to –12.8 percentage points. Compared with the low point of December 2008, opinions are slightly more favourable in the service sector but have improved most dramatically in industry, where the deterioration had been greatest at the height of the recession. Conditions remain more than averagely difficult in Southern Italy.
Credit conditions
In the opinions of the companies credit conditions have ceased to worsen. Compared with March, the share of companies reporting a worsening has dropped from 37.2 to 27.8 per cent, while those reporting an improvement show no change. Breaking down the overall result, assessments are more favourable among industrial firms, those located in the North-West and the South, and large companies. The proportion of companies approaching the banking sector for new or additional credit that report a worsenin g of credit conditions has fallen sharply, from 60.6 to 48.9 per cent, mainly in favour of those that consider the situation unchanged, up from 31.7 to 42.3 per cent.
Employment
Expectations regarding employment remain negative overall: the balance between companies expecting to increase and to reduce their total workforce is virtually unchanged with respect to March, amounting to –25.7 percentage points against –25.8 points. More specifically, expectations are less pessimistic among service companies (–20.6 percentage points) than in industry (–29.6 points). In terms of company size, the negative balance is greater among large companies (–39.1 points), 44.7 per cent of which foresee a reduction, while geographically it is largest in the North-West (–30.8 points). As reported in March, the majority of companies plan to adjust their intake of labour by putting a freeze on hiring and labour turnover, reducing shifts and work hours (partly through recourse to the Wage Supplementation Fund) and not renewing fixed-term contracts. Very few intend to resort to lay-offs or early retirement incentives.
