The interviews for the Banca d’Italia – Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 3 and 20 March 2010. A total of 473 companies with at least 50 employees took part, 283 of which operate in the industrial sector and 190 in the services sector.
Main Findings
Expectations of consumer price inflation in Italy and change in companies’ selling prices
The expected rate of consumer price inflation for the next twelve months rose to 1.4 per cent, from 0.8 per cent in the December 2009 survey; this is broadly consistent with the forecasts of professional analysts for the same time horizon. Expected inflation over the next 24 months held stable at just below 2 per cent.
In March the twelve-month increase in the harmonized index of consumer prices was 1.4 per cent, in line with firms’ expectations twelve months earlier.
Businesses report they have lowered their selling prices by 0.4 per cent in the last twelve months, compared with an increase of 0.1 per cent found in the December survey. The decrease is especially pronounced for firms based in the South and Islands (–0.8 per cent), while there are no appreciable differences between sectors or size classes of firms.
For the next twelve months companies expect to adjust their selling prices upwards by 1.1 per cent, as in the previous survey. In their opinion, the downward pressure on prices will come mainly from competitors’ pricing policies and, to a lesser extent, from the weakness of demand; compared with ago, more upward pressure is expected to come from labour costs and the prices of raw materials.
Assessment of the economic situation
Overall, for the first quarter of 2010 the survey confirms the scaling back of positive assessments of current economic conditions already reported in December, which interrupted the partial recovery found during the summer. The percentage of respondents that think the general economic situation is worse than in the previous quarter has increased from 15.8 to 21.8 per cent, while the share discerning improvement has fallen from 18.9 to 17.7 per cent; the balance of opinions has thus swung from 3.1 to –4.1 percentage points, returning to negative territory for the first time since last summer. The picture is also less favourable as regards assessments of the general outlook: the percentage of companies that expect no improvement over the next three months has risen to 33.3 per cent, from 30.7 per cent in December. Somewhat more positive assessments come from medium-sized and large firms, companies located in the North-West and those that get more than a third of third sales revenues from exports.
Demand trends
Assessments of the evolution of demand in the last three months show a slight deterioration compared with the December survey. The percentage of firms reporting a decrease (25 per cent, against 20.6 per cent in December) now outnumbers those that report an increase, with the balance swinging from 3.1 to –1.4 percentage points . The deterioration is concentrated among companies that do business entirely on the domestic market. By contrast, foreign demand has continued to pick up: among export-oriented firms, the balance between those reporting an improvement and those reporting deterioration, already positive, has surged from 5.2 percentage points in December to stand at 23.3 points.
Business climate
Business conditions are expected to remain stable in the second quarter by 66.4 per cent of firms (compared with 73.2 per cent in the December survey). The balance between companies expecting improvement and those expecting deterioration remains negative but has increased from –1.9 to –0.8 percentage points. Compared with three months ago, firms expect a moderate easing of the pressures connected with labour costs and, more markedly, with conditions of access to the credit market while pressures stemming from raw materials prices are expected to remain about the same.
Although still constituting a large majority, the proportion of firms that expect their business conditions to improve in the next three years has fallen from 75.4 to 68.2 per cent, while the percentage of those expecting conditions to remain basically the same has risen sharply, from 13 to 21.9 per cent. The balance is still widely positive for all size classes, sectors of business and geographical areas. As with the general economic situation, the most prudent assessments come from the smallest firms and from those based in the Centre and South.
Investment climate
After recovering in the second half of 2009, the balance between the number of firms that report an improvement in the conditions for investment and those that report a deterioration in the first few months of the year turned negative by 1.8 points, compared with a positive balance of 3.5 percentages point in December. The percentage of respondents that viewed investment conditions for their companies as being essentially unchanged held at just above 70 per cent. In the South and Islands, the share of companies reporting a worsening in the conditions for investment is about double the national average.
Stocks of finished products
Companies that report having decreased their inventories between the third and fourth quarters of 2009 (37.4 per cent) outnumber those that report an increase (21.2 per cent). Taking account of current and expected demand, the process of inventory reduction that has characterized the recent recession seems to have practically run its course: 82.5 per cent of companies judge the current level of stocks adequate, 12.8 per cent consider it high and only 4.7 per cent view it as too low.
Credit Conditions
The percentage of companies reporting a tightening of conditions of access to credit has fallen further, from 19.9 per cent in December 2009 to 16.2 per cent in March; in December 2008 it stood at 40.6 per cent). The proportion reporting no significant change rose from 74.8 to 79.1 per cent, while again only a tiny minority reports an improvement. The greatest difficulties are signaled by companies based in the South and Islands and by service businesses.
Employment
Short-term expectations for employment are negative for the eighth successive quarter, but less so than in the December survey. The proportion of firms expecting to reduce their workforce in the coming three months has fallen from 28.6 to 19 per cent, while the share indicating that no change is likely has risen from 61.7 to 69.7 per cent. Somewhat more favourable opinions are found for companies based in the Centre and among businesses in the service sector, where the negative balance between the share of firms expecting an increase in employment and those expecting a decrease shrank to less than 2 percentage points.
