The interviews for the June 2008 edition of the Bank of Italy − Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 3 and 30 June 2008. A total of 477 companies with at least 50 employees participated in the survey, 285 of which operate in the industrial sector and 192 in the services sector.
Main findings
Expectations of consumer price inflation in Italy
Inflation is expected to be 3.5 per cent over the next 12 months, an increase vis-à-vis the 3.3 per cent recorded last March. In June 2008, the rate of consumer price inflation was 4 per cent, 1.9 percentage points higher than companies expected in June 2007.
Assessment of the general economic situation
The companies’ assessments of recent trends are still mainly negative: half of the companies interviewed think that the general economic situation in Italy is worse than three months ago. However, this share is lower by almost 23 percentage points compared with the previous survey, with a corresponding increase in those which think the situation is unchanged (44.3 per cent) or that it has improved (5.8 per cent, which is 4.5 percentage points higher than in the last survey). The overall balance is negative but the gap between positive and negative assessments, although still wide, is smaller than in the previous quarter, with a reduction from about 71 to 44 percentage points.
Irrespective of category, 85.5 percent of companies think the likelihood of an improvement in the economic situation in the next three months is less than 25 per cent and 95.1 per cent put it at less than 50 per cent. Among companies in the Centre, 8.8 per cent think the likelihood of an improvement is greater than 50 per cent. Compared with the previous survey, the share of companies giving a less than 25 per cent likelihood of an improvement has fallen by about 2 percentage points with a corresponding increase in those thinking the probability of an improvement is higher.
Business climate
Some 65.2 per cent of companies think that the business climate will remain unchanged in the next three months, a higher percentage than in the last survey, causing a decrease in the shares of those which think the climate will improve or worsen. The share of those which expect an improvement is still considerably smaller than the share of those expecting the situation to worsen (5.6 against 29.2 per cent). The gap has narrowed since the last survey (−23.6 against −26.5 percentage points).
Above all, expected increases in raw materials prices and, to a lesser extent, changes in labour costs and credit conditions are adversely affecting companies’ economic prospects.
Expectations with regard to the business situation in the next three years are more positive than in the previous quarter: 47.7 per cent of companies expect an improvement and 23.4 per cent expect conditions to worsen. The overall balance is positive although the gap between positive and negative responses has widened from 11.6 to 24.3 percentage points since March 2008: it is greatest among companies in the North West (32.2 per cent) and smallest among large companies (1.1 per cent).
Investment climate
Some 37.5 per cent of companies judge that the investment climate has worsened in the last three months, 53.8 per cent consider it unchanged and the remaining 8.7 per cent think it has improved. The overall picture has improved in relation to the previous survey when the figures were 47.5 per cent, 48.1 per cent and 4.4 per cent respectively.
Credit conditions
For three quarters of companies, credit conditions have not changed since March 2008. Access to credit has become more difficult than in the previous quarter according to 22.7 per cent of companies (compared to 19.1 per cent in the last survey); only 3 per cent think that credit conditions have improved (compared to 3.5 per cent in March). The gap between positive and negative responses from companies is lowest in the industrial sector (−12.2 percentage points).
The responses from companies which have approached the banking sector for credit are more polarized. The share of companies reporting improved credit conditions is higher among companies which have actually applied for credit (6 per cent) than among other companies (1.9 per cent).
When assessing these results it should however be noted that a reliable evaluation of market trends will only be possible when responses can be compared over time. To date, a comparison can only bemade between two surveys since the section on credit conditions was introduced for the first time in March 2008.
Employment rate
With regard to total employment, three-month forecasts of a reduction outweigh those of an increase (20.1 per cent and 14.4 per cent respectively). The balance of forecasts of an increase and a reduction has changed sign since March 2008 (−6.7 against 6.9 percentage points).
Changes in companies’ sales prices
On average, companies reported a 2.6 per cent increase in their sales prices in the past 12 months, 0.7 percentage points more than they predicted in June 2007. For the next year, they expect a rise of 2.7 percentage points, which is higher than in the last survey when the corresponding figure was 1.7 per cent. Companies report that tensions in pricing will be caused mainly by changes in labour costs and raw materials prices, the latter having greater impact than in the last survey.
In general, companies usually expect their prices to increase by less than the general index in the course of the next 12 months. The differential vis-à-vis forecasts for June 2009 is 0.8 percentage points. The difference between the annual rate of inflation observed in June 2008 and the price increases reported by companies for the same time period is 1.4 percentage points (unchanged since March 2008).
