The interviews for the March 2009 edition of Il Sole 24 Ore – Banca d’Italia quarterly survey on inflation and growth expectations were carried out between 3 and 23 March 2009. A total of 449 companies with at least 50 employees participated, 265 of which operate in the industrial sector and 184 in the services sector.
Main findings
Expectations of consumer price inflation in Italy a nd change in companies’ selling prices
Inflation is expected to be 1.4 per cent over the next 12 months, falling rapidly from the 2.8 per cent recorded last December. This concurs with the decline recorded in official data and is again higher than the estimates of professional forecasters.
In March 2009 consumer price inflation rate was 1 per cent, that is 2.3 percentage points less than expected a year earlier.
Businesses report they have raised their selling prices by 1 per cent in the 12 months to March, 0.8 percentage points less than recorded in last December’s survey. The slowdown appears sharper in the case of industrial companies, which report an 0.7 per cent rise in prices (compared with 2.5 per cent in the previous survey), than for service companies (1.2 per cent, against 1.5 per cent in December). On average, the increase in selling prices in the two sectors is less than the 1.7 per cent projected in March 2008. For the next twelve months, a rise of 0.6 per cent is projected, which is in line with expectations reported in the December survey. Competitors’ pricing has been the main factor driving down prices; changes in raw materials prices have affected only industrial companies.
In previous surveys, expected increases in selling prices have proved to be lower than the effective increase in the general price index in the following twelve months. Reported changes in selling prices in the previous twelve months are generally also lower than the increase in the general price index
Assessment of the economic situation
The companies’ assessments of the economic situation have not changed from the negative opinions expressed in the December survey: 88 per cent of those interviewed think that the economic situation in Italy is worse than three months ago (87 per cent in December), against 12
per cent that think there has been no change, while almost none see an improvement. However, the proportion of companies that rule out any improvement in the general outlook over the next three months has dropped from 70.8 per cent to 67.6 per cent since December, while those reporting more than a 25 per cent likelihood of improvement has risen to 7 per cent from 5.5 per cent in December. As in December, expectations are less pessimistic among companies in the Centre and to a very small degree also among those with over 1,000 employees.
Business climate
After the sharp deterioration recorded in the December survey, companies’ expectations with regard to the business situation show signs of improvement. The share of those expecting the situation to worsen in the next three months is still over 60 per cent, but down a little from the 66.3 per cent of the previous survey (Table 5). The balance of forecasts of an improvement and a deterioration is negative by more than 55 percentage points, although significantly better that in the previous survey (–64 points; it was about –30 point s in the first three quarters of 2008).
Companies’ assessments of their economic prospects for the next quarter are affected principally by developments in demand and in credit conditions; the trend in labour costs has become a further factor.
Expectations with regard to the business situation in the medium term are still positive and show a slight improvement on the previous quarter, particularly in industry. Companies in the service sector are more prudent.
Investment climate
The majority of companies (56 per cent) judge that the investment climate has worsened in the last three months; however, this compares well with the December survey, when the proportion was about two-thirds. Some 32 per cent consider the climate unchanged and 12 per cent think it has improved, compared with 26 and 9 per cent respectively in the previous survey. Opinions show a clearer improvement in industry than in services, while the balance between optimistic and pessimistic forecasts is markedly negative in Southern Italy at –68 percentage points.
Credit conditions
Compared with the December survey, the share of companies reporting a worsening of credit conditions has dropped from 41 to 37 per cent, and there has been a small increase (to just under 60 per cent) in those that consider the situation unchanged. Responses are evenly distributed according to sector, location and company size. The vast majority of the companies that have approached the banking sector for new or additional credit report a worsening of credit conditions, although less so than in the previous survey.
Employment rate
Expectations regarding employment remain negative: the share of companies expecting to reduce their total workforce (about a third of those interviewed) greatly outweighs the share forecasting an increase (7 per cent). Nonetheless, the gap has narrowed from 34 to 26 percentage points since December, mainly in industry, where it has gone from –40 to –27 per cent. Expectations worsen as company size increases and they are particularly pessimistic in the South and Islands. Companies plan to adjust their intake of labour by freezing hirings and labour turnover, reducing shifts and work hours (partly through recourse to the Wage Supplementation Fund) and not renewing fixed-term contracts. Very few intend to resort to lay-offs or early retirement incentives.
