The interviews for the Banca d’Italia – Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 2 and 20 September 2010. A total of 472 companies with 50 or more employees took part, 270 of which operate in industry and 202 in services.
Main Findings
Inflation expectations in Italy and change in companies’ selling prices
The expected rate of consumer price inflation for the next twelve months is virtually unchanged from the June survey at 1.8 per cent; this is broadly consistent with the forecasts of professional analysts for the same time horizon. Expected inflation over the next 24 months is steady at 2 per cent. In the twelve months to September, the harmonized index of consumer prices rose by 1.6 per cent, 10.5 percentage points more than expected in the survey twelve months earlier.
Businesses report they increased their selling prices by 0.4 per cent in the last twelve months, the same as in the June survey. The actual rise in prices was well below that projected by firms in September 2009 for the twelve months in question (1.1 per cent). The largest increases are reported by firms in industry (0.9 per cent, compared with basically unchanged prices in the service sector) and companies with less than 1,000 workers (0.6 per cent). Geographically, companies in the Centre have raised their prices by more than 1 per cent, while those located in other parts of the country have kept their prices at about the year-earlier level.
For the next twelve months companies expect to adjust their selling prices upwards by an average of 1.2 per cent. As in the previous survey, upward pressure on prices is expected to come from raw materials and, to a lesser extent, labour costs; competitors’ pricing policies are considered likely to exert downward pressure.
Assessment of the economic situation
Assessments of the current cyclical conditions improved slightly in the third quarter of 2010, in a context still characterized by considerable uncertainty. The percentage of respondents that think the general economic situation is unchanged from the previous quarter, already a wide majority, rose further to 66.1 per cent, from 60.9 per cent in June; the balance between the proportion of firms seeing improvement in the general economic situation and those indicating a worsening turned positive (6.4 percentage points) for the first time since the end of 2009. At disaggregated level, the assessments are more optimistic in industry and in the North-West; they remain pessimistic in the service sector and among firms based in the South and Islands.
Opinions regarding the general economic outlook are also more favourable than in the previous survey, though they are still marked by caution: the share of firms that put the likelihood of an improvement in the economic situation in the next three months at greater than 25 per cent has risen by about 5 percentage points with respect to June, to 20.3 per cent; the most optimistic companies are those with 1,000 or more employees.
Demand
Assessments of the evolution of demand in the last three months have stabilized. The share of companies reporting a decrease in demand for their products has fallen from 17.9 per cent in June to 16.6 per cent in September, while the percentage reporting no change has edged up from 57 to 57.9 per cent and that indicating expansion from 25.1 to 25.6 per cent. The balance between firms recording an increase and those recording a decrease remains negative in services and, geographically, for firms located in the South and Islands.
Assessments are again more positive among exporting firms, particularly those that get at least one third of their sales revenues from exports, reflecting the greater liveliness of foreign as opposed to domestic demand. The balance between firms seeing an improvement in export demand and those seeing deterioration was again amply positive and slightly higher than in the previous survey (27.4 percentage points, up from 25.3 points.
Assessment of firm’s business conditions
The balance between firms expecting their business conditions to improve and those expecting a worsening remained negative but slightly less so than in June (by 0.6 as against 2.9 percentage points), reflecting less unfavourable expectations on the part of service businesses (−5.4 points as against −10.9 per cent). In any event, more than 70 per cent of firms do not expect their business conditions to change.
Among the factors that will affect business conditions, the positive contribution expected to come from the change in demand is in line with the previous survey; worries about labour costs, raw materials prices and, to a lesser extent, the conditions of access to credit are also essentially unchanged.
Firms’ expectations of their operating conditions in the next three years are stable: a wide majority expects improvement (63.7 per cent, in line with the previous survey), while 14.8 per cent project a worsening, up from 14.4 per cent in June. Expectations of improvement are especially widespread among industrial firms and companies with 1,000 or more employees.
Conditions for investment
Assessments of the conditions for investment, though better than in June, remained cautious in the third quarter of 2010. Nearly 74 per cent of firms report unchanged conditions, compared with 69.9 per cent in June. The balance between firms seeing improvement and those judging the conditions for investment to be worse than in the previous quarter turned positive by 2.3 percentage points after being negative for two quarters in a row (−5.3 percentage points in June). The balance continues to be negative only for companies based in the South and Islands.
Stocks of finished products
The percentage of industrial companies that report an increase in their inventories of finished products compared with the previous quarter has fallen from 20.9 per cent in June to 16.9 per cent. The majority that says it kept their inventory levels unchanged has increased further, from 54 to 57 per cent.
The share of companies that judge the current level of stocks to be adequate has jumped from 79.6 per cent in June to 85.1 per cent.
Conditions of access to credit
The percentage of firms that sees no change in their conditions of access to credit with respect to the previous quarter has increased further to 84.2 per cent, from 80 per cent in June. The balance between firms reporting that credit access conditions were better and those considering them worse is less strongly negative than in June (−9.0 against −10.2 percentage points).
Employment
Short-term expectations for employment remain negative, though less so than in the June survey. For the tenth quarter in a row, firms expecting to reduce their workforce in the next three months outnumber those expecting to expand it. The negative balance has contracted sharply, however, from 11.9 percentage points in June to 3.7 points in September.
