The interviews for the Banca d’Italia – Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 2 and 21 December 2009. A total of 458 companies with at least 50 employees took part, 264 of which operate in industry and 194 in services.
Main Findings
Expectations of consumer price inflation in Italy and change in companies’ selling prices
The expected inflation rate for the next twelve months fell from 1.1 per cent in the September survey to 0.8 per cent, below the level forecast by professional analysts. Expected inflation over 24 months also declined, falling from 1.8 to 1.3 per cent; inflation expectations are slightly higher in the South, among service businesses and among firms with 1,000
or more employees.
The 12-month change in firms’ selling prices turned slightly positive, by 0.1 per cent, after being negative in the last two surveys (–0.6 per cent in September). The increase was more marked for service companies (0.4 per cent) and firms with 1,000 or more workers (0.3 per cent); by contrast the change was negative for firms in industry (–0.8 per cent), though less markedly so than in September (–1.2 per cent). Geographically, the largest declines were reported by firms based in the North-West and, to a lesser extent, the South and Islands (–1.3 and –0.3 per cent respectively).
For the next twelve months firms expect on average to increase the prices of their products by 1.1 per cent, unchanged from the previous survey, with larger increases in the service sector than in industry (1.2 and 0.7 per cent respectively). Relatively steep increases are also expected by companies with 1,000 or more workers and by those located in the Centre (1.3 and 1.2 per cent respectively). Among the factors that will exert upward pressure on their prices, as in September firms again cite raw materials prices and, marginally, an improvement in demand; they expect downward pressure instead to come from the pricing policies of their main competitors.
Assessment of the economic situation
The survey shows a stabilization of assessments concerning the current state of the economy, which 65.3 per cent of firms (against 63.9 per cent in September) consider unchanged with respect to the previous quarter. The balance between positive and negative opinions is practically unchanged at 3.1 percentage points.
Opinions regarding the short-term outlook for the economy confirm the more favourable signals first picked up in the survey conducted in June. The share of firms that consider there is no or very little likelihood of an improvement over the next three months was about 4 percentage points lower than in September.
Demand trends
Assessments of the evolution of demand signal a slight upturn; the balance between firms indicating an improvement and those reporting deterioration is positive by 3.1 percentage points, whereas in September it was negative by 4.4 points. The persistent pessimism of companies that do most of their business in the domestic market contrasts with the brighter picture portrayed by firms that get at least a third of the ir sales revenues from exports. The balance between exporting firms reporting improvement in foreign demand and those reporting deterioration has turned positive by 5 percentage points, the sharpest recovery being recorded for firms most reliant on exports.
Assessment of firms’ business conditions
The proportion of firms expecting their business conditions to remain unchanged in the next three months has risen from 63.4 per cent in September to 73.2 per cent in December. The negative balance between firms expecting their business conditions to improve and those expecting them to worsen has decreased from –0.8 to –1.9 percentage points, mainly owing to the opinions of service companies.
Firms again expect changes in demand to make a modest positive contribution to business conditions in the next three months, while they are slightly more worried than in the previous survey about the effect of changes in labour costs, raw materials prices and the conditions of access to credit.
Expectations with regard to the business situation over the next three years remain largely positive: 75.4 per cent of companies expect an improvement while 11.6 per cent expect conditions to worsen. The balance of positive and negative responses has nevertheless slightly decreased since September from 64,3 to 63,8 percentage points, reflecting more prudent opinions of the service firms.
Investment climate
For 70.5 per cent of firms, investment conditions a re unchanged from the previous survey; 13 per cent report a worsening and 16.5 per cent an improvement, making a slightly smaller positive balance than in September. Service businesses’ offer more favourable assessments.
Credit conditions
In the December survey 19.9 per cent of firms consider their conditions of access to credit worse than three months earlier, compared with 18.6 per cent in September; 74.8 per cent consider them unchanged and 5.3 per cent indicate an improvement (compared with 75 and 6.3 per cent respectively in September). The balance between positive and negative opinions is again negative (by 14.6 percentage points, compared with 12.3 points in the previous survey). Assessments are less unfavourable among larger firms and more unfavourable among firms based in the South and Islands.
Employment
Short-term expectations regarding the labour market remain unfavourable: 28.6 per cent of firms expect to reduce their workforce in the next three months while 9.7 per cent expect to expand it. The difference between the two share s is about the same as in the previous survey. The negative balance is particularly large in industry, where 30.8 per cent of firms expect a decrease in employment and only 7.4 per cent an increase. Geographically, the most unfavourable assessments come from firms in the Centre, the least unfavourable from those in the North. In line with the results of the three preceding surveys, in order to adjust their labour input firms expect to resort mainly to the combination of a hiring freezes, followed by a reduction in shifts and work hours and non-renewal of fixed-term contracts; they expect to make relatively less use of voluntary severance incentives and individual or collective lay-offs.
