The interviews for the December 2008 edition of the Bank of Italy−Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 3 and 19 December 2008. A total of 466 companies with at least 50 employees participated in the survey, 274 of which operate in the industrial sector and 192 in the services sector.
Main Findings
Changes in companies’ selling prices
In December, companies report a 1.8 per cent increase in their selling prices in the past 12 months (2.5 for industry excluding construction and 2.6 in the North East), more than 1 percentage point less than the figure reported in September and fairly close to expectations expressed in December 2007 (1.7 per cent). For the next twelve months, they plan a rise of 0.5 per cent, which is measurably lower than in the last survey, when the corresponding figure was 2.4 per cent. Companies report that their prices will be driven down by competitors’ pricing and, especially for industry, by changes in demand.
Expectations of consumer price inflation in Italy
Inflation expectations for December 2009 are now down about one percentage point with respect to expectations for September 2009, reported three months ago. The increase in consumer prices would set up to 2.8 per cent, a figure higher than those reported by professional forecasters, plausibly reflecting an influence on firms’expectations of latest official data available at the time of the interview.
In December 2008, consumer inflation was at 2.3 per cent, 0.3 percentage points lower than expectations expressed by firms in December 2007.
As regularly seen, companies expect their prices to increase by less than the general inflation rate projected for the next 12 months. With respect to the past, companies usually report lower price changes than the general inflation rate.
Assessment of the economic situation
The companies’ assessments of recent trends in the general economic situation keep worsening vis-à-vis September 2008: 87.4 per cent of the companies interviewed think that the economic situation in Italy is worse than three months ago (was 56.1 in September), against 12 per cent thinking there has been no change. Those reporting an improved overall economic situation are a negligible share. Firms having their headquarters in the Centre report a relatively less pessimistic view (17.8 per cent think the situation has not worsened with respect to September). 70.8 per cent evaluate the probability of an improvement in the next three months at zero and 23.8 per cent indicate a probability between 1 and 25 per cent. Relatively less pessimistic expectations are reported by bigger firms (with at least 1,000 employees) and in the Centre.
Business climate
With respect to the preceding wave of the survey the percentage of firms envisaging a worsening of the business climate has risen significantly (66.3 per cent, from 38 per cent in September) while the percentage of firms foreseeing a better climate reduces to a very modest 1.5 per cent (from 6.2 per cent). 32.2 per cent consider the business climate unchanged in the next three months (was 55.8 per cent). Opinions are particularly negative among firms in the South, where 79.5 per cent expect a deterioration.
Economic prospects are affected above all by trends in demand (with a higher score with respect to September), in labour costs and in credit conditions (with a lower score with respect to September); only firms located in the South indicate a non-negligible effect of costs of raw materials.
Expectations with regard to the business situation in the next three years are overall positive: 48.7 per cent of companies expect an improvement, compared with 48.6 per cent in September, and 24.3 per cent expect conditions to worsen, against 20.4 per cent in September. Industrial firms and those with at least 200 employees show a greater share (above 50 per cent) of those expecting an improvement in the next three years, while companies expecting a deterioration prevail in the North East and the South (about 27 per cent).
Investment climate
Some 65.6 per cent of companies (38.4 in September) judge that the investment climate has worsened in the last three months, 25.8 per cent (57.9 in September) consider it unchanged and the remaining 8.6 per cent (3.7 in September) think it has improved. Compared with the previous quarter, the balance shifts from –34.7 to –57 percentage points. Opinions are particularly negative among firms located in the Centre and the South (where only 2 per cent judge that the climate has improved, as compared to 11.6 per cent in the North) and among bigger firms, 70 per cent of which indicate a deterioration.
Credit conditions
At the moment of the interviews, 56.6 per cent of companies report unchanged credit conditions with respect to September 2008). Access to credit has become more difficult than in the previous quarter according to 40.6 per cent of companies (compared with 26.7 per cent in the last survey); 2.8 per cent think that credit conditions have improved (was 1.5 per cent). The gap between positive and negative responses from companies has widened to –37.8 from –25.2 percentage points overall in September 2008 and is highest among companies located in the Centre (–49.4) and in the South (−43), lowest in the North East (–26 percentage points).
Employment situation
The share of companies expecting to reduce their total workforce in the next three months outweighs the share forecasting an increase (39.3 per cent and 5.4 per cent respectively). The balance of forecasts of an increase and a reduction is still negative and has deteriorated since September 2008 (−33.9 against –12.7 percentage points). Balance is lowest (–17.6 percentage points) for firms with at least 1000 employees. Opinions remain more pessimistic among industrial firms than in services.
