The interviews for the June 2007 version of the Bank of Italy-Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 1 and 29 June 2007. 444 companies with at least 50 employees participated in the survey, 240 of which operate in the industrial sector and 204 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, with no changes vis-à-vis the results from the previous quarter. In June 2007, the rate of consumer price inflation was 1.7 per cent, 0.8 percentage points lower than expected in June 2006.
Assessment of the general economic situation
The companies’ assessments showed positive signs: 25.7 per cent of companies think that the general economic situation in Italy has improved compared with three months earlier, 60.3 per cent think it is unchanged, and 14 per cent think it has worsened. Nevertheless, the differential between positive and negative assessments is narrowing: in March 2007 it was 31.6 percentage points while today it is 11.7 percentage points.
The share of positive opinions was greater among companies with more than 1000 employees (38.9 per cent) and those in the services sector (28 per cent); while negative opinions are more widespread in the South (19.9 per cent) and among companies with between 50 and 199 employees (17.4 per cent).
There was less optimism about the future than in the previous survey. Some 22.5 per cent of companies put the likelihood of an improvement in the general economic situation in the next three months at zero, while 28.5 per cent think it is more than 25%. In March, the corresponding percentages were 15.5 per cent and 33.9 per cent respectively. As in the past, the most positive signs come from large companies. There is a strong correlation between the views regarding economic developments in the previous three months and the likelihood of an improvement in the next three months.
Business environment
Although 71.4 per cent of companies believe that their business environment will remain unchanged in the next thee months, the share of those who expect an improvement is greater than the share of those who expect the situation to worsen (17.6 per cent compared with 11 per cent). The differential between the two options has narrowed since the last survey (6.6 percentage points compared with 14.1 percentage points in March). 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 view the effects of increases in raw materials prices and labour costs will have a slightly negative impact on their business in the next quarter; while the effects of domestic and foreign demand are viewed as slightly positive.
Expectations with regard to the business situation in the next three years remain positive: 46.2 per cent of companies expect an improvement (compared with 53.4 per cent in March), while 22.8 per cent expect conditions to worsen (compared with 18.6 per cent in March). Positive responses for the next three years are more widespread in the South (55.5 per cent) and among companies with 1000 or more employees (51.3 per cent).
Investment environment
Some 70.9 per cent of companies judge that the investment environment has remained unchanged in the last three months (compared with 63.5 per cent in the last survey). Pessimistic views were more widespread than positive ones (16.3 per cent compared with 12.9 per cent), whereas in March pessimistic views were expressed by 15.8 per cent and positive ones by 20.7 per cent). The greatest share of positive assessments were found in the South (19.5 per cent) and among companies with more than 1000 employees (18.4 per cent). As in the previous survey, the strongest signs of a worsening in the investment environment came from companies in the North-East (22.9 per cent expressed a pessimistic view).
Employment rate
With regard to total employment, three-month forecasts of an increase outweigh those of a reduction (30 per cent compared with 18.4 per cent) as was previously observed in 2006. Expectations of an increase in employment were more widespread among companies in the services sector (36.6 per cent compared with 16.7 per cent that expect a reduction) and companies in the North-East (35.1 per cent expect an increase and only 9 per cent a reduction). Some 25.4 per cent of smaller companies also expected an increase in employment compared with 16.7 per cent that expected a reduction. Companies in the South and the Centre are following the opposite trend: 32.4 per cent of companies in the South expect a reduction and only 23 per cent an increase; in the Centre, 21.4 per cent of companies expect a reduction and 16.3 per cent an increase. As in the past, employment is expected to increase, even if we only look at permanent employment (overall 22.1 per cent of companies expect an increase compared with 14.2 per cent that expect a reduction). Fixed-term employment is also expected to rise, as in the past, in particular in the North and in the services sector.
Changes in companies’ sales prices
On average, companies reported an increase in their sales prices of 2.9 per cent in the past 12 months, 0.4 percentage points more than they expected in June 2006. For the next year, they expect an increase of 2.5 percentage points. Companies in the South 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 a slight inflation effect of changes in raw materials prices and 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 over the next 12 months. However, in this survey, the trend has been inverted and the differential vis-à-vis forecasts for June 2008 is −0.4 percentage points. The difference between the annual inflation rate observed in June 2007 and the price increases reported by companies over the same time period is −1.0 percentage points compared with −1.1 percentage points in March.
