The interviews for the latest Banca d'Italia – Il Sole 24 Ore survey on inflation and growth expectations were carried out between 1 and 21 June 2012. A total of 750 firms with 50 or more employees took part, of which 408 operate in industry and 342 in services.
Main findings
Inflation expectations in Italy and change in companies’ selling prices
The expected rates of consumer price in flation for the 6-month time horizon were revised upwards, from 3.2 per cent in the March survey to 3.4 per cent; those for the 12-month and 2-year time horizons also increased, from 3.2 to 3.3 per cent and from 3.0 to 3.2 per cent, respectively. As in the March survey, the projections are higher than the corresponding forecasts by professional analysts, especially for the longer time horizons. In June the harmonized twelve-month increase in consumer prices was 3.6 per cent, more than half a percentage point higher than expected in the year-earlier survey.
Firms estimated that their selling prices had risen by 1.8 per cent from a year earlier, slightly above the 1.7 per cent increase reported in the March survey, but lower than the 1-year forecasts in the June 2011 survey. The biggest increases were recorded in the Centre of Italy and among larger firms. For the next twelve months, firms expect to raise their selling prices by 1.3 per cent. The slow down mainly reflects the lower rate of increase in raw material prices.
Assessment of the general economic situation
During the spring pessimism regarding the general economic situation deepened: the percentage of firms indicating that conditions deteriorated in the second quarter rose from 41.5 per cent in the March survey to 70 per cent, bringing the balance between positive and negative judgments to levels close to the lows recorded last autumn. Unfavourable assessments prevailed across all size categories and geographical areas, especially in the Centre and North-East and among smaller firms.
Looking ahead, the proportion of firms that saw zero probability of an improvement in the general economic situation in the next three months rose to almost 60 per cent; slightly less pessimistic assessments were reported by medium-sized and large firms, while firms operating in the service sector were more pessimistic.
Demand
Firms’ assessments of overall demand for their products also worsened, albeit to a limited degree: the negative balance between expectations of an increase and a decrease widened from 28.4 percentage points in the March survey to 33.5 percentage points. Less pessimistic opinions were recorded among firms in the Centre of Italy and in the industrial sector as a whole, above all owing to the larger share of turnover generated by exports.
The positive balance between expectations of an improvement or worsening of foreign demand increased from 0.9 percentage points in the last survey to 4.1 percentage points; the prevalent outlook, accounting for close to 50 per cent of assessments, continued to be for no change. Medium-sized firms and service firms gave the most favourable judgments, while the assessments of firms in the South were markedly less favourable than the average. Looking ahead, 29.4 per cent of exporting firms expect demand for their products on foreign markets to increase, compared with 32.1 per cent in the March survey, with few differences across size categories and geographical areas.
Assessment of firms' business conditions
The proportion of firms expecting their business conditions to deteriorate rose sharply to 41.4 per cent, from 31.1 per cent in the March survey, and as a result the negative balance between those expecting improvement and deterioration worsened from –21.5 to –37.8 percentage points. Among the factors cited, raw materials prices lost importance, while the change in aggregate demand was seen as more significant. The deterioration in the assessment of business conditions was especially marked among respondents resident in the North-East; in the North-West the prevalent outlook was for no change.
For the longer term, 55.3 per cent of the firms expect conditions to improve over the next three years, down from 59 per cent in March. The situation was worst in the service sector, where the positive balance between expectations of improvement and deterioration was just 16.9 percentage points, compared with 45.1 in industry (the corresponding figures in March were 25.1 and 52.8 points).
Conditions for investment
The negative balance between the firms expecting worse and those expecting better conditions for investment widened sharply to –47.4 percentage points, from –26.1 points in March. The assessments of large firms were the least pessimistic.
Firms’ liquidity and access to credit
There was a marginal improvement in firms’ overall liquidity position. The positive balance between those expecting liquidity to be sufficient or more than sufficient and those expecting it to be insufficient over the next three months increased to 47.8 percentage points from 44.4 in March. The gain was mostly due to the responses of larger firms and those located in the North.
Businesses’ judgments on the state of their bank deposits, on a seasonally adjusted basis, also improved somewhat. The percentage of firms reporting a contraction declined from 45.1 to 42.8 per cent. For the country as a whole the decline in deposits was due principally to a reduction in revenues and, to a lesser extent, to difficulty in accessing bank credit and the need to rebalance portfolios in response to financial market uncertainty.
There was no significant change since March in firms’ conditions of access to credit. Almost two thirds of the firms said that conditions were unchanged in the three months, while those reporting deterioration continued to outnumber those reporting improvement by 31 percentage points.
Workforce
Forecasts of workforce changes over the next three months were more pessimistic than in March. The negative balance between expectations of increase and decrease widened from –9.5 to –17.1 percentage points. The most pessimistic outlook was reported by firms located in the Centre and the South.
