The interviews for the March 2007 version of the Bank of Italy-Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 2 and 30 March 2007. 459 companies with at least 50 employees participated in the survey, 247 of which operate in the industrial sector and 212 in the services sector.
Main results
Expectations of consumer price inflation in Italy
Inflation is expected to be 2.1 per cent over the next 12 months, a slight decrease vis-à-vis the results from the previous quarter. In March 2007, the rate of consumer price inflation was 2.1 per cent, 0.3 percentage points lower than expected in March 2006.
Assessment of the general economic situation
The companies’ assessments provide positive signals. According to 41.7 per cent of companies, the general economic situation in Italy has improved compared with three months earlier, 48.3 per cent think it is unchanged, and 10.1 per cent think it has worsened. Therefore, the differential between positive and negative assessments has widened from 6.7 percentage points in December 2006 to today’s 31.6 percentage points.
The share of positive opinions was greater among companies in the North-West (45.5 per cent) and for large companies (44.2 per cent); while negative views were more widespread in the South (16.1 per cent). The opinions expressed in the services sector were more polarized: 12 per cent made a negative assessment and 45.1 per cent a positive one, compared with the industrial sector’s 7.2 per cent of negative opinions and 36.4 per cent of positive views.
There was more optimism about the future than in the previous survey. Some 15.5 per cent of companies put the likelihood of an improvement in the general economic situation in the next three months at zero, while 33.9 per cent believe the likelihood to be more than a quarter. In the December survey, the corresponding results were 28 per cent and 23.2 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 next three months.
Business environment
Although 66.2 per cent of companies believe that their business environment will remain unchanged in the next three months, the share of those who expect an improvement is greater than the share of those who expect the situation to worsen (23.9 per cent compared with 9.8 per cent). The differential between the two options has more than tripled since the last survey (14.1 percentage points in March compared with 4.2 percentage points in December). Once again there is 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 more incisive and positive impact from demand, both domestic and foreign but view price effects as only moderately positive.
Expectations with regard to the business situation in the next three years remain positive: 53.4 per cent of companies expect an improvement (compared with 50.1 per cent in December), while 18.6 per cent expect conditions to worsen (compared with 17.2 per cent in December). Positive responses for the next three years were more common in the North-West (54.7 per cent) and in the Centre (54.6 per cent), while negative responses were more common in medium-sized companies (20.7 per cent).
Investment environment
Some 63.5 per cent of companies judge that the investment environment has remained unchanged in the last three months (compared with 59.2 per cent in the last survey). Optimistic views are more widespread than negative ones (20.7 per cent compared with 15.8 per cent), in contrast with the situation in December (when 16.6 per cent expressed optimistic views and 24.1 per cent pessimistic views). The greatest share of optimistic assessments was found in companies with more than 1000 employees (26 per cent). The strongest signs of a worsening in the investment environment came from companies in the North-East (18.4 per cent of which made negative assessments). Once again, opinions express ed in the services sector were particularly polarized: 18.4 per cent of companies indicated a worsening investment environment and 24.8 per cent an improvement compared with results for the industrial sector of 11.9 per cent and 14.5 per cent respectively.
Employment rate
With regard to total employment, three-month forecasts of an increase outweigh those of a decrease (35.1 per cent compared with 18.4 per cent) and, as was previously observed in 2006, the differential continues to increase. As in the past, companies in the services sector are more likely to expect an increase in employment (40.4 per cent foresee an increase compared with 16.3 per cent expecting a decrease) as are those in the North-East (38.1 per cent compared with 12.9 per cent). In this survey, 37.8 per cent of small companies also expected an increase in employment compared with 11 per cent expecting a decrease. Companies in the South are following the opposite trend (38.5 per cent expect a decrease in employment and only 25.6 per cent an increase). As in December, employment is expected to increase, even if we only look at permanent employment (25.9 per cent of companies expect an increase compared with 16.6 per cent expecting a decrease). As in the past, fixed-term employment is also expected to increase, an opinion expressed, in particular, by large companies and those in the services sector.
Changes in companies’ sales prices
On average, companies reported an increase in their sales prices of 3.2 per cent in the past 12 months, 1.5 percentage points more than they expected in March 2006. This rise in prices reflects price increases in the transport sector. For the next year, they expect an increase of 2 percentage points. Companies in the Centre and those in the services sector seem to be experiencing a steadier increase in prices, regarding both backward-looking and forward-looking assessments. Prices have increased less in the North-East. Companies report an inflation effect of changes in the exchange rate of the euro, while factors such as the cost of labour and raw materials prices seem to have very little influence.
There is a general expectation among companies that their prices will increase by less than the general index over the next 12 months; the differential vis-à-vis forecasts for March 2008 is 0.1 percentage points. The difference between the annual inflation rate observed in March 2007 and the price increases reported by companies over the same time period is −1.1 percentage points compared with −0.6 percentage points in December.
