The interviews for the latest Banca d’Italia – Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 1 and 22 September 2014. A total of 1.032 companies with 50 or more employees took part, of which 397 operate in industry excluding construction, 406 in services and 229 in construction firms with 50 or more workers.
The main findings for firms in services and in industry excluding construction
Inflation expectations in Italy and change in firms’ price
In September 2014 firms revised their consumer inflation expectations downward from the June survey, by around half a percentage point for all time horizons. Expectations for the next six months ahead declined from 0.7 to 0.3 per cent, while those for one and two years ahead came down from 0.9 and 1.0 per cent to 0.4 and 0.6 per cent respectively. Forecasts over a longer horizon of three to five years, surveyed for the first time in March, fell from 1.2 per cent in the two previous surveys to 0.8 per cent.
Firms reported that their sales prices declined by 0.2 per cent on an annual basis (in June they had remained unchanged). Over the next twelve months they expect prices to show limited growth of 0.7 per cent, as in the previous survey. Weak demand and competitors' pricing policies were confirmed as the main contributions to price moderation, while the effect of pressures from labour costs and raw materials prices is expected to remain limited.
Assessment of the general economic situation
The negative balance between judgments of an improvement and a deterioration in the general economic situation widened, from -0.5 percentage points in June to -28.7 percentage points, though for the majority of firms the outlook remained stable (62.7 percentage points, from 67.9 in the previous survey). The average probability assigned to an improvement of the overall economic situation in the next three months declined from 16.1 to 11.9 per cent.
Demand
Firms’ assessments of current and forecast demand worsened. The balance between reports of increases and decreases in demand for the respondent firms’ products turned negative (-6.8 percentage points compared with 4.2 percentage points in the June survey), reflecting the very marked deterioration in industry. Only industrial firms with a high proportion of turnover generated abroad continued to report a positive, if declining, balance. The balance of short - term expectations for demand also worsened, falling from 16.3 to 5.5 percentage points, but was nonetheless positive for the third quarter in a row.
The balance between increases and decreases in foreign demand for firms’ own products was more favorable, although with respect to the June survey it fell from 27.1 to 13.5 percentage points. Short-term expectations for demand also deteriorated: the proportion of firms expecting an increase in foreign demand fell from 39.9 per cent in June to 28.9 per cent, while that of firms expecting a decrease rose from 5.3 to 9.4 per cent.
Assessment of business conditions
Most firms continued to expect business conditions to remain stable over the next three months (71.9 per cent). However, the balance between those seeing an improvement and those seeing a deterioration, already barely positive in the June survey, turned negative (-13.6 percentage points), mainly reflecting widespread pessimism among service firms. As before, changes in credit conditions in both the industry and service sectors did not appear to have any negative repercussions on the operating environment.
The medium-term outlook, three years ahead, remained positive but nonetheless darkened slightly. The proportion of firms indicating an improvement declined from 64.0 per cent in June to 57.7 per cent, while 18.4 per cent expected conditions to get worse.
Investment conditions
Firms’ judgments on investment conditions were unfavourable: the balance between responses indicating an improvement and those indicating a deterioration declined from 1.9 percentage points in the June survey to -8.9 percentage points. The judgments were particularly negative in the service sector.
Investment expenditure in the second half of 2014 is expected to largely resemble the levels recorded in the first half of the year: 56.6 per cent of firms predict it will remain constant while the balance between those expecting to increase investment and those expecting to decrease it is 3.4 percentage points, from 11.9 percentage points in June. The expectations of industrial firms and of those that generate a large proportion of turnover abroad were relatively more optimistic.
Expectations on investment outlays for 2014 as a whole do not point to a recovery with respect to 2013. The percentage balance between those planning increases and decreases was barely 2.3 percentage points, down from 13.1 percentage points in June. Around half of the operators surveyed expected investment to remain constant; positive assessments were concentrated in the industrial sector.
Liquidity and access to credit
Difficulties in accessing credit remain basically unchanged. The negative balance between the share of firms reporting better financing conditions compared with the previous quarter and those indicating a worsening eased slightly, from -4.1 to -3.1 percentage points.
Firms’ expectations concerning their liquidity position over the next three months declined slightly compared with the previous survey: the share of those expecting it to be inadequate rose from 17.8 to 19.1 per cent, while those considering it more than adequate fell from 19.7 to 17.4 per cent. The picture was still relatively more favourable for the largest firms.
In this survey firms were asked whether, after discounting normal seasonal fluctuations, they had reduced their bank deposits in the previous three months; a large majority of firms, especially in industry, reported that they had not done so (71.3 per cent). For those that did reduce their bank deposits, the single biggest factor influencing their decision was the decline in receipts.
Employment
Expectations for employment in the short term deteriorated: the proportion of firms estimating an increase in staff numbers in the next three months fell from 11.8 per cent, from 14.3 per cent in June; those expecting a decline rose from 16.3 to 20.4 per cent.
Construction firms
The views of construction firms concerning the general economic outlook grew more pessimistic in September, with the negative balance between expectations of an improvement and a deterioration widening to -37.9 percentage points, from -14.1 percentage points in the previous survey. The probability assigned to an improvement in the next three months declined slightly, to 7.8 per cent, from 11.3 per cent in June.
Assessments of demand for the reporting firms’ own services also declined somewhat, with 11.1 per cent of firms reporting an improvement and 25.4 per cent reporting a decline (the balance was -14.3, compared with -7.2 per cent in June). The positive balance on short-term demand expectations contracted from 12.7 to 4.1 percentage points.
Firms' assessments of operating conditions deteriorated; the negative balance on assessments for the next three months widened from -9.4 to -20.6 percentage points. Expectations three years ahead also declined, with 54.5 per cent of firms now expecting conditions to improve, compared with 62.8 per cent in the previous survey, while the proportion expecting conditions to worsen rose from 13.7 to 14.4 per cent.
Pessimism about investment conditions deepened in the third quarter of the year, with the negative balance between expectations of an improvement and a deterioration at -17.8 percentage points, from -8.6 percentage points in the June survey. Firms continued to predict that investment expenditure would fall in 2014 as a whole compared with 2013, with the balance declining to -13.0 percentage points, from -4.0 percentage points in the previous survey.
The portion of construction firms reporting that they had gotten through the worst of the cyclical phase from the summer months onwards dropped slightly, to 22.0 per cent, from 25.5 per cent in June; the percentage expecting a "substantial increase" in output in the coming months fell from 38.3 to 33.8 per cent.
On employment, construction firms continued to anticipate a decrease in their workforce over the coming three months.
