The interviews for the Banca d’Italia – Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 3 and 21 June 2010. A total of 480 companies with at least 50 employees took part, 278 of which operate in the industrial sector and 202 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 is 1.7 per cent, up slightly from 1.4 per cent in the March survey; this is broadly consistent with the forecasts of professional analysts for the same time horizon. Expected inflation over the next 24 months also rise slightly to 2 per cent, compared with 1.8 per cent in March. In June the twelve-month increase in the harmonized index of consumer prices is 1.4 per cent, in line with firms’ expectations twelve months earlier.
Businesses report they had increased their selling prices by 0.4 per cent in the last twelve months, compared with the decrease of 0.4 per cent found in the previous survey. The actual increase in prices is lower than the corresponding expectations for the next twelve months recorded in the June 2009 survey (0.8 per cent).
For the next twelve months companies expect to adjust their selling prices upwards by an average of 0.9 per cent. Upward pressure on prices is expected to come from raw materials and, to a lesser extent, labour costs, while competitors’ pricing policies will continue to exert downward pressure. As in the previous survey, upward pressure on prices is expected to come from raw materials and, to a lesser extent, labour costs, while competitors’ pricing policies will continue to exert downward pressure.
Assessment of the economic situation
The gradual scaling back of positive assessments of current economic conditions, under way since the December survey, continued in the second quarter of 2010, albeit more moderately than in the first. The percentage of respondents that report the general economic situation is worse than in the previous quarter has increased from 21.8 to 23.4 per cent, while the share that report it is better has fallen from 17.7 to 15.6 per cent and the proportion that judges it to be about the same is virtually unchanged. The balance of opinions is more strongly negative than in the March (–7.8 as against –4.1 percentage points). At disaggregated level, the assessments are slightly more pessimistic in the service sector, among firms located in the Centre and, more markedly, those in the South and Islands; as in the previous survey, for firms with 1,000 or more employees the balance is slightly positive (2.9 per centage points).
Opinions regarding the general economic outlook remain cautious. More than 80 per cent of the firms judge the chances of an improvement in the economic situation in the next three months to be nil or very low, about the same proportion as in March; by contrast, 11 per cent of the firms with 1,000 or more employees assess that the likelihood of an improvement is greater than 50 per cent.
Demand trends
The percentage of firms reporting no change in demand for their products compared with three months earlier has risen to 57 per cent, from 51.5 per cent, while the share reporting an expansion has edged up from 23.6 to 25.1 per cent. Geographically, the balance between firms recording an increase and those recording a decrease has turned positive for firms in the North-East and the Centre but remains negative for those located in the South and Islands.
Assessments are distinctly more positive among exporting firms, particularly those that get more than two thirds of their sales revenues from exports. For the last-mentioned companies, the difference between reports of increase and reports of decrease is again largely positive, increasing from 23.3 percentage points in March to 25.3 points in June.
Business climate
As in the previous survey, some two thirds of firms expect their business conditions to be unchanged in the third quarter of 2010. However, the proportion of firms expecting conditions to improve remains smaller than that of those expecting deterioration (15.1 against 18 per cent).
Among the factors that will affect business conditions, assessments of the positive contribution of the change in demand are in line with the previous survey (stronger for companies based in the North-East), while there is growing concern about raw materials prices and changes in the conditions of access to credit.
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 68.2 to 63.6 per cent, while the percentage expecting conditions to get worse has increased from 9.9 to 14.4 per cent. The drop in positive expectations appears to be more pronounced for service businesses and small firms.
Investment climate
Overall, assessments of the conditions for investment remain unfavourable in the second quarter of 2010. The balance between firms seeing improvement and those that judge the conditions for investment to be worse than in the previous quarter decrease from –1.8 percentage points in March to –5.3 points in June. Some 70 per cent of firms continue to consider the situation basically unchanged.
Stocks of finished products
Companies in the industrial sector that report having depleted their inventories of finished products between the first and second quarters of 2010 are outnumbered more than two to one by those that kept their inventory levels unchanged (25.2 as against 54 per cent).
Consistently with firms’ more cautious assessments of the general economic outlook, more firms now judge the current level of stocks to be high than in the previous survey, the percentage rising from 12.8 to 16 per cent, while fewer of them consider it adequate.
Credit Conditions
There is virtually no change with respect to March in firms’ assessments of the conditions of access to credit: 80 per cent consider them the same as in the previous quarter (79.1 per cent in March), while a slightly smaller share reports a tightening (15.1 per cent, compared with 16.2 per cent in the previous survey). Less unfavourable assessments come from larger companies and firms headquartered in the South and Islands.
Employment
Short-term expectations for employment are worse than in the March survey. For the ninth quarter in a row, firms expecting to reduce their workforce in the next three months outnumbered those expecting to expand it. The negative balance is widening again, from 7.7 percentage points in March to 11.9 points in June). Geographically, the most unfavourable forecasts come from companies located in the Centre and South.
