The interviews for the December 2006 wave of the Bank of Italy/Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 4 December 2006 and 5 January 2007. 460 companies with at least 50 employees participated in the survey, 246 of which operate in the industrial sector and 214 in the services sector.
Main results
Expectations of consumer price inflation in Italy
Inflation is expected to be 2.2 per cent over the next 12 months, a slight decrease vis-à-vis the results from the previous quarter. In December 2006, the last month for which a comparison can be made between expectations and definitive macroeconomic data, the rate of consumer price inflation was 2.1 per cent, which was lower than expected in December 2005.
Assessment of the general economic situation
The companies’ assessments provide moderate ly positive signals. According to 58.3 per cent of companies, the general economic situation in Italy is unchanged compared with three months earlier. The proportion of companies who think that the situation has improved is greater than the proportion who think it has got worse (24.2 per cent compared with 17.5 per cent). Compared with the last survey, however, the differential between positive and negative assessments has narrowed (from 32.4 to 6.7 percentage points).
The share of positive opinions was above average among companies with more than 1000 employees (35.8 per cent) and those in the Centre (28.9 per cent), while negative views were more widespread among medium-sized companies (18.5 per cent) and those in the North-East (20.8 per cent).
Companies are less optimistic about the future than they were in the past. In the current survey, 28 per cent of companies put the likelihood of an improvement in the general economic situation in the next three months at zero, while 23.2 per cent believe the likelihood to be more than a quarter. In the September survey, the corresponding results were 15.8 and 33.5 per cent respectively. As in the past, the most optimistic signs come from the North and from large companies. There is a strong correlation between the views regarding the development of the economy in the previous three months and those regarding the likelihood of an improvement in the following three months.
Business environment
Although 70.5 per cent of companies believe that their business environment will remain unchanged in the next three months, the share of those who expect a positive development is greater than the share of those who expect the situation to worsen (16.8 compared with 12.6 per cent). The differential between the two options has narrowed since the last survey (4.2 percentage points compared with 14.9 percentage points in September). There is again a strong correlation between the opinions expressed and the views regarding economic developments in the previous three months.
As in the past, companies expect that increases in raw materials prices and labour costs will have a slightly negative impact on their business in the next quarter. They expect a positive impact from demand, both domestic and foreign, and price effects.
Expectations with regard to the business situation in the next three years remain positive, although the level of optimism is lower than in September: 50.1 per cent of companies expect an improvement (compared with 58.5 per cent in September), while 17.2 per cent expect conditions to worsen (compared with 15.6 per cent). Positive responses were more common in the services sector (51.6 per cent) and among medium-sized companies (53.3 per cent), while negative responses were relatively more common in the South (22.3 per cent) and in the industrial sector (19.1 per cent).
Investment environment
59.2 per cent of companies judge that the investment environment has remained unchanged in the last three months (compared with 69.6 per cent in the last survey). Negative views are more widespread than positive views (24.1 per cent compared with 16.6 per cent; Table 9), by contrast with the situation in September (when the views stood as 11 and 19.4 per cent respectively). The strongest signs of a worsening came from companies in the North-East (34.6 per cent of whom gave negative assessments), while the highest shar es of optimistic assessments were found in the
South and the Centre (21.9 and 25.0 per cent respectively).
Employment rate
With regard to total employment, three-month forecasts of an increase outweigh those of a reduction (31.4 compared with 19 per cent). This was the case in the previous survey, and the differential has increased. As in the past, companies in the services sector are more likely to expect an increase in employment (36.9 per cent foresee an increase, with 17.2 per cent expecting a decrease), as are those in the North-East (40.3 compared with 13.2 per cent) and large companies (33.3 compared with 22.5 per cent). In the industrial sector, signs are weaker (26.5 compared with 20.5 per cent). As in September, expectations of an increase also outweigh those of a decrease in the case of permanent employment (23.6 compared with 15.6 per cent who expect a fall). An exception is seen in the South and Islands, where 21.4 per cent of companies expect a reduction in permanent employment, and only 11.9 per cent expect an increase. As in the past, fixed-term employment is foreseen to increase in particular by large companies, in the services sector and in the South. The opposite trend is witnessed in the central regions.
Changes in companies’ sales prices
On average, companies reported an increase in their sales prices of 2.3 per cent in the past 12 months, 0.6 percentage points more than they expected in December 2005. For the next year, they expect a rise of 2.4 percentage points, 0.3 percentage points more than they expected in the last survey. Companies in the South seem to be experiencing a more sustained rise, while those in the North-East have witnessed a more contained increase. The increase can be explained mainly by tensions in the market for raw materials and changes in the exchange rate of the euro.
There is a general expectation among companies that their prices will increase by less than the general index in the course of the next 12 months. For the first time since the survey began, the differential vis-à-vis forecasts for December 2007 is a negative value, albeit modest in size (-0.2 percentage points; Figure 4). Looking back, companies usually report lower price increases than the general index. This trend is also confirmed for the December 2006 survey; the difference between the actual inflation rate in the previous 12 months and the price increases reported over the same time period is 0.2 percentage points (compared with 0.6 percentage points in September).
