The interviews for the September 2007 version of the Bank of Italy/Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 3 September 2007 and 1 October 2007. 454 companies with at least 50 employees participated in the survey, 250 of which operate in the industrial sector and 204 in the services sector.
Main results
Expectations of consumer 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 September 2007, the rate of consumer price inflation was 1.7 per cent, 0.8 per centage points lower than expected in September 2006.
Assessment of the general economic situation
The companies’ assessments have worsened in relation to the previous quarter: 39.3 per cent of companies think that the general economic situation in Italy has worsened compared with three months earlier, 53.2 per cent think it is unchanged, and 7.5 per cent think it has improved. The balance between positive and negative assessments has now changed sign and is wider than in the last two quarters.
Companies with at least 200 employees and those in the Centre viewed the general economic situation less severely, while negative views were more widespread in the North-East (46 per cent) and the South (45.4 per cent).
Optimism about the future was concentrated in companies with at least 1000 employees where 12 per cent put the likelihood of an improvement in the general economic situation in the next three months at "more than 50%", which is only slightly below the figure for all the companies interviewed in the previous two quarters. For the remaining companies, however, the percentage believing the likelihood of an improvement to be at least one in four does not exceed 20 per cent (28.5 per cent in the previous quarter for all companies). The likelihood of an improvement in the next three months is zero for 41 per cent of companies; this percentage was 22.5 per cent in the previous quarter. There is more pessimism in the North-West (49.8 per cent) and among companies with less than 200 employees (43.5 per cent). 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 64.5 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 less than the share of those who expect the situation to worsen (13.5 per cent compared with 22 per cent). The differential between the two options has changed sign since the last survey (17.6 percentage points compared with 11 percentage points in June). 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 view the effects of domestic and foreign demand as positive, even if slightly less so than in the previous quarter, while they think that the effects of increases in raw materials prices and labour costs will have a slightly negative impact on their business in the next quarter.
Expectations with regard to the business situation in the next three years remain positive: 42.5 per cent of companies expect an improvement (compared with 46.2 per cent in June), while 22 per cent expect conditions to worsen (compared with 22.8 per cent). Positive responses for the next three years have increased in the industrial sector, in the Centre and in the South and Islands, but have decreased in the North and in the services sector. The balances for all groups continue to be wide and positive.
Investment environment
Some 57.9 per cent of companies judge that the investment environment has remained unchanged in the last three months (compared with 70.9 per cent in the last survey). The balance between optimistic and pessimistic views is clearly negative and much more so than in the previous quarter at an aggregate level (−27.8 percentage points compared with −3.4) and for all groups in the survey.
Employment rate
With regard to total employment, three-month forecasts of an increase outweigh those of a reduction (24 per cent compared with 16.6 per cent). While the balance between the two directions is still positive, it is 4.3 percentage points lower than last June. In particular, fixed-term employment is expected to remain basically unchanged (13.2 per cent expect an increase, 13.9 per cent a decrease while in the previous quarter the balance was positive by 8 percentage points). As in June, the services sector has a greater expectation of an increase in employment, rather than a decrease (28.6 per cent compared with 14.3 per cent) and in the North-East (27.3 per cent compared with 14.7 per cent), even if in this geographical area the balance has approximately halved since the last survey (+12.6 percentage points compared with +26.1) The same balance, although positive, is clearly falling also as regards companies with less than 1000 employees. By contrast, and in line with the last survey, employment is expected to fall slightly in the industrial sector (17.6 per cent compared with 19.6 per cent) and in companies in the Centre (10.6 compared with 12.1 per cent), above all for the fixed-term component (5.7 per cent compared with 17.3 per cent in the Centre). However, fixed-term employment is rising in companies with at least 1000 employees (27.9 per cent compared with 15.7 per cent) and in companies in the North-West (15.3 per cent compared with 7.7 per cent); for these latter companies, the positive balance seems to have halved since last June.
Changes in companies’ sales prices
On average, companies reported an increase in their sales prices of 1.8 per cent in the past 12 months, 0.3 percentage points less than they expected in September 2006. For the next year, they expect a rise of 2 percentage points. As in the past, companies in the South and those with less than 200 employees seem to be experiencing a steadier rise, for the latter group in relation to the forecasts, while those in the services sector have reported a more contained increase, both backward- and forward-looking. Prices have also increased less in the North-East. Companies report that tensions in pricing can be explained mainly by changes in raw materials prices and, to a lesser extent, 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. This trend seems less marked in recent surveys: the differential vis-à-vis forecasts for September 2008 is 0.1 percentage points. The difference between the annual inflation rate reported in September 2007 and the price increases reported by companies over the same time period is very small, −0.1 percentage points compared with −1.0 percentage points in June.
