The interviews for the Banca d’Italia – Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 1 and 20 December 2010. A total of 481 companies with 50 or more employees took part, 281 of which operate in industry and 200 in services.
Main findings
Inflation expectations in Italy and change in companies’ selling prices
In December the twelve-month change in the harmonized index of consumer prices was 2.0 per cent, 1.2 percentage points higher than expected in the December 2009 survey.
The expected twelve-month rate of consumer price inflation shows a progressive increase over the longer time horizons: it is 1.9 per cent at six months (recorded for the first time in this survey), rises to 2.0 per cent at one year and 2.2 per cent at two years. Inflation expectations 12 and 24 months forward are 0.2 percentage points higher than in the September survey and are now higher than the forecasts of professional analysts for the same time horizons.
Businesses reported that they had increased their selling prices by 0.9 per cent from a year earlier, half a percentage point more than recorded in the last two surveys. The actual increase in list prices was slightly below that projected by the same firms in December 2009 (1.1 per cent). The increases were largest for firms in industry (1.3 per cent, against 0.6 per cent for service firms) and companies with 1,000 or more employees (1.1 per cent). Geographically, the rise in selling prices reported by firms was steepest in the Centre and South.
For the next twelve months firms expect to raise their list prices by 1.4 per cent on average, with a more marked increase in the North (1.7 per cent). Further upward pressure on selling prices is expected to come from raw materials and, to a lesser extent, labour costs, while competitors' pricing policies are held likely to continue to exert downward pressure.
Assessment of the general economic situation
The improvement in assessments of the current cyclical conditions found in September did not continue in the fourth quarter. A wide majority of respondents considered the general economic situation unchanged from the previous quarter (65.3 per cent, compared with 66.1 per cent in September). The balance between the proportion of firms seeing improvement in the general economic situation and those indicating a worsening, which had been positive by 6.4 percentage points in September, turned negative by 16.1 points. The balance of assessments was less negative in the North-East; it was more pessimistic in the service sector and among firms based
in the Centre and South.
Opinions regarding the short-term outlook for the economy were also less favourable than in the survey conducted in September. The share of firms that reckoned there was a one-in-four chance, at least, that the economic situation would improve declined by 1.7 percentage points from September to 18.6 per cent. There was a greater degree of optimism among companies with 1,000 or more workers.
Demand
Assessments of the evolution of demand in the last three months were basically worse than in September. The share of companies reporting a decrease in demand for their products increased from 16.6 to 24.5 per cent, while the percentage reporting no change fell from 57.9 to 52.5 per cent and that indicating expansion from 25.6 to 23 per cent. The balance between firms recording an increase and those recording a decrease was strongly negative among firms that get no more than a third of their sales revenues from exports, among service businesses and companies located in the North-West and Centre.
Assessments were substantially more positive again among exporting firms, particularly those that get at least one third of their turnover from exports, despite a slowdown in foreign demand. The balance between firms seeing an improvement in export demand and those seeing deterioration remained positive but contracted by almost one half, from 27.4 percentage points in September to 14.8 points.
Assessment of firm's business conditions
Some two thirds of firms expected their business conditions to remain unchanged in the next three months. The negative balance between the percentage of companies expecting improvement and those expecting a worsening increased from 0.6 to 3.8 percentage points, reflecting in particular more unfavourable expectations among firms in the service sector, where the negative balance widened to 18.4 percentage points, compared with 5.4 points in September.
Among the factors that will affect business conditions, the change in demand was expected to continue to have a positive impact, albeit less than in the four preceding quarters. Expectations regarding labour costs, raw materials prices and the conditions of access to credit remained negative.
By contrast, firms’ forecasts regarding their operating conditions in the next three years are stable. Nearly two thirds of firms expect improvement (64.3 per cent, up from 63.7 per cent in the previous survey), while 15.7 per cent project a worsening, compared with 14.8 per cent in September. Expectations of improvement are especially widespread in industry and among companies with 1,000 or more employees.
Conditions for investment
Assessments of the conditions for investment were more unfavourable than in September. The balance between firms reporting improvement and those judging the conditions for investment to be worse than in the previous quarter swung back into negative territory, to minus 8.5 percentage points, from plus 2.3 in September. The negative balance was especially large among service firms and companies based in the South and Islands. Firms judging the conditions for investment to have been unchanged from the previous quarter again made up a wide majority, though not quite as large as in September (72.1 against 73.9 per cent).
Stocks of finished products
The percentage of industrial companies reporting an increase in their stocks of finished products compared with the previous quarter held at 16.9 per cent (Table 12). A majority of firms again reported that they had kept their inventory levels unchanged, but the percentage slipped from 57 to 54.3 per cent.
The share of companies judging the current level of stocks to be adequate stabilized at around 85 per cent.
Conditions of access to credit
More than 80 per cent of firms again reported no change in their conditions of access to credit with respect to the previous quarter. The percentage reporting a worsening grew slightly,from 12.4 to 13.9 per cent, as did that of those indicating an improvement, from 3.4 to 5.1 per cent, with the balance again negative and broadly unchanged at about 9 percentage points.
Employment
For the eleventh quarter in a row, firms expecting to reduce their workforce in the next three months outnumbered those expecting to expand it. The negative balance increased from 3.7 percentage points in September to 8.8 points in December.
