The interviews for the latest Banca d’Italia – Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 4 and 21 March 2013. A total of 834 companies with 50 or more employees took part, of which 412 operate in industry excluding construction and 422 in services. Starting with the December 2012 edition, the survey also polls construction firms with 50 or more workers; in March 2013 the construction sample consisted of 196 firms.
Main findings
Inflation expectations in Italy and change in companies’ selling prices
The decrease in 6-month inflation expectations continued (from 2.7 per cent in December to 2.4 per cent in March), in line with the slowdown in actual inflation in the first few months of 2013. Forecasts for 1 and 2 years ahead were also revised downwards (both from 2.7 to 2.4 per cent).
Businesses reported that they had raised their selling prices by 0.6 per cent in the last twelve months, more than a full percentage point less than they had expected a year earlier. For the next twelve months firms expect a very modest rise in selling prices, just 0.4 per cent; they reported that the pressure deriving from production costs remained practically unchanged from the previous survey, as did the moderating influence of weak demand.
Assessment of the general economic situation
Firms’ assessments of general economic developments worsened again during the first quarter. The gap between those seeing an improvement and those seeing a deterioration in the current scenario widened sharply (to a negative balance of 68.5 percentage points from 53.7 in December), bringing it back to the level recorded last June. The number of firms offering a positive evaluation is now below 1 per cent. Pessimism deepened in the service sector in particular. The average probability assigned to an improvement in the general economic situation over the next three months remained at the low levels of the previous survey; among export-oriented firms, the proportion reporting zero probability of improvement increased.
Demand
The proportion of firms giving a negative assessment of the demand for their products in the last three months increased: the negative balance between expectations of an increase and a decrease worsened from 30.2 percentage points in the December survey to 33 points; the deterioration was sharper among exporters. Somewhat less pessimistic views were expressed on the outlook for demand in the second quarter: the negative balance between expectations of an increase and a decrease improved from 17.2 to 11.9 percentage points.
Exporting firms’ assessments of the demand for their products on foreign markets in the first quarter as compared with the fourth quarter of 2012 were more favourable, especially those of larger firms and those located in the North. For the second quarter the outlook showed a sharp improvement involving all firms.
Assessment of firms' business conditions
Expectations concerning business conditions over the next three months are still pessimistic. The negative balance between expected improvement and deterioration was 39 percentage points, about the same as in December. Only 3.4 per cent of the respondents expected conditions to improve. Service firms’ expectations worsened. The expected negative impact of demand and of credit conditions was attenuated.
Over the longer term (three years), assessments are more optimistic. By comparison with the December survey, the percentage of firms expecting an improvement in their business conditions rose from 53.8 to 57.1 per cent; the improvement was most marked among firms in the North-West and the Centre.
Conditions for investment
Overall, investment remains sluggish. The negative balance between firms that reported an improvement in investment conditions in the first quarter and those reporting a deterioration worsened again, to 47.3 percentage points from 37.0 in December, returning to the low levels registered last June.
The outlook for investment in 2013 as a whole has also worsened. Firms forecasting a contraction with respect to 2012 outnumbered those expecting an increase by 19 percentage points as against 14 points in December. In particular, the deterioration reflected the exacerbation of the assessments of service firms, where the balance between expectations of expansion and contraction worsened by 8 percentage points compared with December.
The trend in investment expenditure between the second half of 2012 and the first half of 2013 remained slack, confirming the findings of the December survey.
Liquidity conditions and access to credit
Firms’ assessments of their liquidity in the next three months became slightly less unfavourable than in the December survey: 27.2 per cent expected it to be inadequate (down from 28.6 per cent), while those considering it more than adequate remained at 12 per cent. The situation appeared to be better for larger firms.
Credit access is still difficult. The proportion of firms reporting that their conditions of access to credit had deteriorated declined slightly, to 28.8 per cent from 30.5 per cent in December.
Workforce
Expectations for employment in the short term were less negative, on the whole. The proportion of firms expecting to increase staff in the next three months rose from 7.4 to 9.6 per cent, while those expecting their employment to diminish came down from 30.7 to 23.6 per cent.
Construction companies
Construction firms’ assessments of the general economic situation are more pessimistic than those of other industrial and service firms. Some 76 per cent of construction firms reported a worsening of economic conditions, while fewer than 1 per cent signaled an improvement. The probability they ascribe to the emergence of a more favourable scenario in the next three months was negligible.
Construction firms painted a highly negative picture of the course of customer demand in the past three months. Nearly 50 per cent of those surveyed reported that demand had decreased, only 7.3 per cent that it had increased. The short-term outlook (for the current quarter) is less dire: the balance between assessments of increasing and of decreasing demand is negative by 20 percentage points, and by just 7.1 points for firms that get at least a third of their revenue from residential building work.
Expectations for the economic environment for construction firms three months ahead are also pessimistic; 47.6 per cent of the respondents said conditions would worsen and just 2.8 per cent that they would improve. For the next three years, 56.3 per cent of construction firms expect an improvement and 23.5 per cent a deterioration.
Since the December survey, the portion of firms reporting a worsening of investment conditions increased, to 57.6 per cent. And expectations of a reduction in investment in 2013 by comparison with 2012 far outweigh expectations of an increase.
Construction firms expect a sharper decrease in staff over the next three months than firms in the rest of industry and in the service sectors.
