The interviews for the Banca d’Italia - Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 1 and 19 June 2015. A total of 1,003 firms with 50 or more employees took part, of which 387 operate in industry excluding construction, 417 in services and 199 in construction.
The main findings for firms in services and in industry excluding construction
Inflation expectations in Italy and change in firms’ selling prices
In June firms raised their consumer inflation expectations for the next six months up slightly, to 0.3 per cent from 0.2 per cent in the March survey, while expectations one and two years ahead were stable at 0.5 and 0.8 per cent, respectively. By contrast, forecasts for the next three to five years were revised down slightly, to 1.0 per cent from 1.2 per cent in the previous survey.
Firms reported that they had lowered their selling prices by 0.2 per cent compared to one year earlier (they were unchanged in March); list prices fell both in industry excluding construction and ,to a lesser extent, in services. Selling prices are expected to increase moderately in both sectors over the next twelve months: overall, firms expect an upward adjustment of 0.7 per cent, barely higher than that envisaged in the March survey (0.6 per cent).
For the first time since March 2012 the firms surveyed viewed demand as a factor giving a positive, albeit limited, boost to future selling prices. Upward pressures stemming from changes in commodity prices and labour costs were confirmed, while the pricing policies of competitors are still the main inhibiting factor.
Assessment of the general economic situation
Firms’ assessments of Italy’s general economic situation continued to be positive, though slightly less so following the marked improvement reported in the previous survey: the balance between judgments of improvement and deterioration was equal to 15.8 percentage points (from 18.6 percentage points in March and -23.1 percentage points last December); the proportion of firms reiterating their view that Italy’s situation is stable increased, from two thirds to just under three quarters of the survey sample. The average probability assigned to an improvement of the economic situation in the next three months also remained basically stable at positive levels.
Demand
The balance between firms reporting an increase in demand for their products in the last quarter compared with those reporting a decrease rose significantly (to 11.5 per cent, against 1.0 per cent
in the previous survey). This reflected both the increase in the number of firms recording an improvement and the decrease in those recording a deterioration. Trends were particularly favourable for firms in industry excluding construction and those operating in Italy’s South and Islands. Short-term expectations remained in positive territory, with a balance between positive and negative opinions that was slightly lower than in March (down to 17.3 from 21.2 per cent). There was also an increase in the number of firms expecting the situation to remain substantially unchanged.
Firms' opinions on foreign demand for their products, both current and over the next three months, were also positive and reportedly improving, though not as markedly as in the previous survey.
Assessment of business conditions
Firms’ expectations concerning the economic conditions in which they will be operating over the next three months continued to be cautiously optimistic, although the bulk of responses indicated expectations of stability (78.9 per cent compared with 71.6 in March). The balance between firms expecting an improvement and those expecting a deterioration, which turned positive in the March survey, remained substantially stable (at 5.4 percentage points from 4.9 percentage points): the increase recorded in the assessments of firms in services offset the fall in manufacturing. Economic activity is expected to benefit from the positive contribution of variations in demand and prices, and in the euro-dollar exchange rate, both factors reported to be improving, though only marginally; the brake represented by uncertainty stemming from economic and political factors appears to be basically unchanged from March.
The share of firms reporting a decrease in their ‘normal’ level of activity in the last two years has gone up from 37.6 to 39.5 per cent, although this is still well below the figures reported for December 2014; by contrast, 26.0 per cent reported an increase in activity while about 27 per cent reported no change.
Investment conditions
Firms’ assessments of investment conditions remained favourable, albeit slightly less so than in the previous quarter: the balance between responses indicating an improvement and those indicating a deterioration fell to 8.7 per cent from 14.5 per cent, though these figures are still among the highest reported since 2006; there were broadly similar trends in manufacturing and services.
The balance between firms expecting an increase in nominal investment expenditure in the first half of 2015 compared to the second half of 2014 and those expecting a decrease is over 11 per cent (up from the 5.5 per cent reported in the previous survey). The improvement mainly reflected trends in the manufacturing sector and among medium to large companies (with over 200 employees); almost 60 per cent of firms expected nominal investment expenditure to remain unchanged compared to the second half of 2014.
For 2015 as a whole the balance between firms forecasting an increase in investment and those expecting a decrease has narrowed to 14.1 per cent (from 16.4 per cent in the last survey), mainly reflecting a marked downward adjustment of investment plans in the service sector; just under half of respondent firms expect total investment expenditure to remain unchanged compared with 2014 (against 45.4 per cent in the previous survey.
Some 43.9 per cent of respondent firms declared that they have overcome the most difficult phase of the downturn, down from 47.1 per cent in March; the percentage of firms predicting a substantial improvement in their output in the coming months remained stable at 46.4 per cent.
Liquidity and access to credit
Access to credit continued to ease, in line with the trend under way since December 2012. In the last quarter the balance between the share of firms reporting easier access to credit compared with the previous quarter and those indicating greater difficulty was positive for the second time since the question was included in the survey in September 2008, increasing to 7.8 percentage points (from 4.7 points). More specifically, 14.4 per cent of firms report an easing in access to credit, compared with 12.3 per cent in March, while 6.6 per cent report a tightening, compared with 7.6 per cent in the previous quarter. The improvement was more marked in manufacturing and was reported all over Italy including, for the first time, firms in the South and Islands. The most recent monetary policy measures adopted by the ECB also seem to have helped bring about more favourable funding conditions and large firms in particular reported a positive impact. Overall, 37.0 per cent of firms identified in easier access to credit their key driving factor, while for 40.6 per cent of firms the key driver was an improvement in confidence.
Firms' expectations concerning their liquidity position in the short term also improved slightly: the share of those expecting it to be inadequate in the next quarter remained stable at 15.6 per cent, while those considering it more than adequate rose from 21.6 to 22.2 per cent.
Employment
Expectations for employment in the short term improved slightly. The share of firms estimating an increase in staff numbers in the next three months rose to 19.1 per cent, up from 18.2 per cent in December; those expecting a decline also increased, from 14.4 to 14.9 per cent, while roughly two thirds of firms expect the situation to remain basically unchanged.
Construction firms
In June the moderate optimism of construction firms concerning the general economic outlook, as reported in the previous quarter, strengthened further: the balance between judgments of an improvement and a deterioration remained positive at 2.1 per cent, (down from 3.0 per cent in March; compared with -34.9 per cent in December). The probability assigned to an improvement in the scenario in the next three months was also largely unchanged at 12.8 per cent, having almost doubled in the previous survey.
Assessments of demand for reporting firms’ own services were slightly less favourable on average than in the previous quarter, and the balance between firms reporting an improvement and those reporting a deterioration narrowed to 2.2 per cent, from 3.4 in March. The balance of answers on
the short-term outlook for demand remained positive but was virtually halved, falling from 17.5 to 9.4 percentage points.
The respondent firms' assessments of the economic conditions in which they are operating remained stable following the improvement reported in the March survey. The balance on assessments for the next three months stood at -2.0 per cent, as in the previous survey. Apart from the uncertainty attributable to economic and political factors, other – though more minor - obstacles could include oil price developments and the euro-dollar exchange rate. Positive stimuli to the economy appear to be coming mainly from increased demand for firms’ services (both new and pre-existing orders) and from an improvement in the terms of access to credit.
Expectations three years ahead remained positive, though less so compared to the previous survey. The balance between firms expecting an improvement and those expecting a deterioration fell from 60.0 to 49.1 percentage points, as against 36.3 percentage points in December, mainly because of a decrease in the share of firms expecting an improvement.
The percentage of firms reporting a decrease in their ‘normal’ level of activity in the last two years was 59.4 per cent, higher than that reported in the March survey. Conversely, the percentage of firms reporting an increase was lower, down from 15.8 to 11.7 per cent.
Construction firms' views on investment conditions mirror those of firms in manufacturing and services: in the last quarter the balance between firms expecting an improvement and those expecting a deterioration remained positive at 2.1 percentage points (from 7.3). The balance between the percentage of firms predicting an increase in their nominal expenditure on fixed investment in the first six months of 2015 compared with the second half of 2014 turned positive (2.7 per cent, from -4.5 per cent in March). For 2015 as a whole compared with 2014 the balance was -1.2 per cent (from -8.0), reflecting above all the improvement for firms mainly involved in residential construction.
The share of construction firms reporting that in the previous months they had overcome the most difficult phase of the downturn was stable at 35.8 per cent, while those expecting a "substantial increase" in output in the upcoming months fell to 44.0 per cent, having risen sharply in March, to 48.4 per cent from 29.2 in December.
Expectations for employment over the next few months are more pessimistic than in the last survey: the negative balance between expectations of an improvement and a deterioration has widened to -24.3 per cent, from -14.1 in March.
Firms’ views on the conditions of access to credit improved: the balance went from -4.7 to -1.7 per cent, also as a result of the impact of the recent monetary policy measures adopted by the ECB: among those construction firms significantly affected, more than half stated that the factor having the largest impact was the easing of funding conditions.
