The interviews for the Banca d’Italia – Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 3 and 22 September 2009. A total of 465 companies with at least 50 employees took part, 286 of which operate in the industrial sector and 179 in the services sector.
Main Findings
Expectations of consumer price inflation in Italy and change in companies’ selling prices
Inflation is expected to be 1.1 per cent over the next 12 months, down from 1.4 per cent in the forecasts made in June and lower than the estimates of professional forecasters. Expectations for the next 24 months put inflation at 1.8 per cent (1.9 per cent in June). For both time frames, inflation expectations are slightly lower in the South, among service companies, and among companies with 1,000 or more workers.
In September this year the twelve-month rise in the harmonized consumer price index came to 0.3 per cent (preliminary estimate released by Istat on 30 September), more than 3 percentage points lower than firms’ expectations in September 2008 (3.7 per cent).
Businesses reported they had lowered their selling prices by 0.6 per cent in the 12 previous months, compared with 0.4 per cent in the 12 months to June, in sharp contrast with the 2.4 per cent increase that had been expected in September 2008. The reduction was largest (1.2 per cent) in the case of industrial companies and almost negligible (0.2 per cent) for service firms. By region, the sharpest reduction (1.8 per cent) was recorded by firms in the North-West.
For the next twelve months, an average sales price rise of 1.1 per cent is anticipated, with no significant difference between industrial and service firms (0.9 and 1.2 per cent respectively); this is slightly higher than the expectations recorded in the June survey (0.8 per cent), unlike the trend in inflation expectations. The largest rises are anticipated by firms in the South and Islands (1.6 per cent). The factors that firms cited as determinants of the rise were again, as in June, the upward pressure from raw materials prices and the downward pressure from the pricing policies of their main competitors. Changes in demand were expected, for the first time in four quarters, to exert a modest upward pressure.
Assessment of the economic situation
The survey results confirm the signs of an easing of the recession offered by the most recent cyclical indicators. For the first time after eight quarters, the firms finding an improvement in the general economic situation outnumbered the pessimists, by 19.6 to 16.4 per cent, compared with a negative balance of 26 per centage points in the previous survey. Expectations for the next three months also suggest a less unfavourable economic picture. The share of firms that do not rule out an improvement rose to 69.7 per cent, from 53.8 per cent in June. The portion rating the probability of improvement in the economy as a whole at better than 50 per cent rose from 5.0 to 8.0 per cent. Expectations were marginally better among large firms and those in the North.
Demand trends
The September survey added two new questions on the trend in demand during the quarter. The responses indicated continuing weak demand; 53.3 per cent judged that demand conditions were unchanged from three months earlier. The balance between evaluations of improvement (21.2 per cent) and deterioration (25.6 per cent) was negative, though only slightly.Large firms and those located in the North-East and the Centre expressed the least favourable views. An examination of the state of export demand alone basically confirms this overall picture.
Business climate
The share of companies expecting their situation not to change significantly over the next three months remained virtually unchanged from June at 63.4 per cent, while those forecasting an improvement have risen from 10.2 to 17.9 per cent and are now only just barely outnumbered by the 18.7 per cent that forecast a deterioration. With diminishing fears of a further fall in demand, especially in industry, though it remains basically weak, firms confirmed their concern over raw materials prices and labour costs. Credit conditions continue to exert a non-favourable effect, though less pronounced than in the previous survey.
Expectations with regard to the business situation in the longer term (three years) improved again; they were better for nearly three quarters of the respondents, compared with 69 per cent in June. The percentage was practically uniform by sector, firm size and region, except for the South and Islands, where it fell from 64.4 to 58.2 per cent.
Investment climate
For the first time after nine quarters, the companies that believe the investment climate has improved outnumbered those that said it had deteriorated: 19.8 to 13.9 per cent, compared with 14.0 and 26.8 per cent in June. Positive replies were more numerous than average in the North-West, in industry, and in the medium-sized firms (200-999 workers). The number judging that investment conditions were unchanged rose again, from 59.2 to 66.3 per cent.
Credit conditions
The survey’s findings point to an easing in the deterioration of credit conditions. The percentage of firms reporting a worsening over the three months diminished further to 18.6 per cent (from 27.8 per cent in June), after peaking at 40.6 per cent in December. As a consequence, the number judging the situation to be unchanged increased to three quarters of the sample, while those reporting an improvement remained rare (6.3 per cent). Assessments are more favourable among larger firms and in the North-West.
Employment
Short-term expectations regarding the labour market remain pessimistic: the balance between companies expecting to increase and to reduce their workforce remains negative, though the difference eased from 25.7 percentage points in June to 18.0 points. Assessments were markedly more pessimistic than average in industry, where the balance was negative by around 30 points (more than a third of the firms forecast a reduction in work force and just 5 per cent an expansion), compared with –3.6 points in the services sector. By region, the worst indications were in the South and Islands, the least negative in the North-West. In line with previous surveys, companies plan to adjust their labour input (as they have in the past nine months) mainly by hiring freezes, reducing shifts and work hours and not renewing fixed-term contracts. Relatively few intend to resort to lay-offs or early retirement incentives.
