The interviews for the Banca d’Italia – Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 3 and 21 March 2011. A total of 491 companies with 50 or more employees took part, 290 of which operate in industry and 201 in services.
The main findings
Inflation expectations in Italy and change in companies’ selling prices
The expected rate of consumer price inflation shows a moderate increase with respect to the time horizon, standing at 2.2, 2.3 and 2.4 per cent respectively for the 6, 12 and 24-month horizons. Inflation expectations 6 and 12 months forward are higher by 0.3 points and those 24 months forward by 0.2 points than in December. The three projections are higher than the corresponding forecasts by professional analysts. In March the twelve-month increase in the harmonized index of consumer prices was 2.6 per cent, 1.2 percentage points higher than expected in the survey twelve months ago.
Businesses reported that they had increased their selling prices by 1.2 per cent from a year earlier, a larger upward revision than in the preceding surveys (in December the increase had been 0.9 per cent). The actual increase in list prices broadly confirmed the projections made by the same firms in March 2010. The increases were larger in industry than in services (2.2 and 0.7 per cent respectively).
For the next twelve months firms expect to raise their list prices by 1.8 per cent on average, with a sharper increase in the North-East. As in the previous survey, firms expect upward pressure on selling prices to come from raw materials and, to a lesser extent, labour costs, and downward pressure from competitors' pricing policies.
Assessment of the general economic situation
After worsening in the previous survey, assessments of the current cyclical conditions improved somewhat in the first quarter of 2011, albeit in a context still marked by considerable uncertainty. The percentage of respondents that considered the general economic situation unchanged from the previous quarter declined, although it again constituted a strong majority (60.8 per cent, against 65.3 per cent in December). Firms seeing improvement in the general economic situation and those indicating a worsening were virtually in balance, compared with a negative difference of 16.1 percentage points in the previous survey. The balance of assessments turned positive for firms in industry and companies based in the North, while it remains negative in the service sector and for firms based in the Centre and, especially, the South and Islands.
Uncertainty continues to prevail regarding the short-term outlook for the economy. The share of firms that reckoned there was at least a one-in-four chance that the economic situation would improve declined by slightly from December, falling by 2 percentage points to 16.6 per cent; there was again a greater degree of optimism among companies with 1,000 or more workers.
Demand
Assessments of the evolution of demand in the last three months improved. The share of companies reporting no change in the demand for their products rose slightly, from 52.5 to 54.2 per
cent, and that reporting expansion increased from 23.0 to 26.5 per cent, while the percentage indicating contraction fell from 24.5 to 19.3 per cent. The balance between responses indicating expansion and contraction was strongly positive in industry and slightly negative in services; geographically, a strongly positive balance among firms located in the North contrasted with the negative balance in the South and Islands.
Assessments were again more positive among exporting firms, particularly those that get at least a third of their turnover from exports. The positive balance between firms seeing improvement in export demand and those seeing deterioration nearly doubled with respect to the December survey, rising from 14.8 to 27.0 percentage points.
Assessment of firms’ business conditions
The percentage of firms that expect their business conditions to remain unchanged in the next three months remains preponderant (close to 70 per cent). The balance between the share of companies expecting improvement and those expecting a worsening, while remaining negative, almost vanished, falling from nearly 4 to 0.7 percentage points as a consequence of less unfavourable expectations among firms in the service sector, where it contracted from 18.4 to 7.4 percentage points.
Among the factors that will affect business conditions, the change in demand was expected to have a more positive impact than had been found in the previous survey, while expectations regarding the effects of raw materials prices and firms’ selling prices worsened and the expected negative impact of the evolution of labour costs remained unchanged.
Firms’ three-year forecasts regarding their operating conditions continue to show some optimism. A wide majority expected improvement (64.7 per cent, up from 64.3 per cent in the previous survey), while the share of those projecting a worsening declined from 15.7 to 14.0 per cent. Expectations of improvement were especially widespread in industry and among companies with 1,000 or more employees.
Conditions for investment
After worsening in December, assessments of the conditions for investment continue to reflect an environment of pronounced uncertainty. The percentage of firms discerning no change in investment conditions from the previous quarter declined from 72.1 per cent in September to 69.2 per cent. The balance between firms reporting improvement and those judging the conditions for investment to be worse than in the previous quarter remained negative by 97 percentage points. The most unfavourable assessments came from firms based in the South and Islands.
Scorte di prodotti finiti
The percentage of industrial companies reporting that they had increased their stocks of finished products compared with the previous quarter rose from 16.9 per cent in December to 17.9 per cent. The percentage reporting no change in their inventory levels, already a majority, turned upwards, increasing from 54.3 to 59.5 per cent.
A larger percentage of companies than in December judged the current level of stocks to be adequate (86.5 per cent, up from 85.3 per cent).
Conditions of access to credit
The proportion of firms reporting no change in their conditions of access to credit with respect to the previous quarter rose slightly to 82.7 per cent. The negative balance between firms reporting a worsening and those indicating an improvement grew from 8.8 to 12.9 percentage points.
Employment
Short-term expectations for employment improved. After being in negative territory for nearly three years, the balance between firms expecting to reduce their workforce in the next three months and those planning to expand was nil.
