The interviews for the latest Banca d’Italia – Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 3 and 26 June 2013. A total of 824 companies with 50 or more employees took part, of which 405 operate in industry excluding construction and 419 in services. The survey also polls construction firms with 50 or more workers; in June 2013 the construction sample consisted of 186 firms.
The main findings
Inflation expectations in Italy and change in companies’ selling prices
In June 2013 inflation expectations for the next six months were revised significantly downwards to 1.5 per cent (from 2.4 per cent in the March survey), in line with the reduction in inflation in the second quarter reported by Istat. Forecasts for 1 and 2 years ahead were also adjusted downwards to 1.6 and 1.7 per cent respectively, from 2.4 per cent for both these years in the last survey.
Businesses reported they had increased their selling prices only slightly over the last twelve months, by 0.1 per cent, more than one percentage point less than expected a year earlier. For the next twelve months, they forecast a modest upward revision of their price lists, of about 0.5 per cent. Firms’ judged that the pressure from the cost of raw materials had slightly eased, while the tendency towards price moderation in response to weak demand was almost unchanged.
Assessment of the general economic situation
Firms’ assessments of the general economic situation were still negative but less pessimistic in the second quarter of 2013 compared with the previous period. The negative balance between those seeing an improvement and those seeing deterioration declined to -49.9 percentage points from -68.5 points in the March survey. In particular, the evaluations of service sector firms were less negative. The average probability assigned to an improvement in the economic situation over the next three months increased slightly although it was still low (at around 10 per cent); among the more export-oriented firms, the proportion reporting zero probability of improvement fell back below 50 per cent.
Demand
The proportion of businesses giving a negative assessment of the demand for their products in the second quarter decreased: the negative balance between favourable and unfavourable assessments narrowed to -22 percentage points (-33 points in the March survey), the least negative balance in the last two years; the improvement was more noticeable among exporting firms. The opinions about the outlook for demand in the current quarter also appear less pessimistic: the balance between assessments of an improvement and deterioration was -6.9 percentage points, against -11.9 points in the previous survey.
Firms' assessments of the current trend regarding exports of their products in the second quarter of this year were positive, about the same as in March. The outlook for the quarter under way remains favourable, although to a lesser degree compared with the previous survey.
Assessment of firms' business conditions
Expectations concerning firms’ business conditions over the next three months improved, although they were still pessimistic. The balance between responses expecting an improvement and expectations of a deterioration came to -17 percentage points, compared with -39 points in March; more than 70 per cent of firms expect conditions to remain unchanged. The expectations of companies in the service sector showed a more pronounced improvement). The negative influence of demand and of credit conditions on business activity is expected to abate somewhat.
Looking further ahead (three years), the assessments are more optimistic. There was a continued increase in the number of firms indicating an improvement in their business conditions (61.1 per cent against 57.1 per cent in March), above all in the service sector.
Investment
Investment conditions have become less unfavourable: the negative balance between firms reporting an improvement in the second quarter of 2013 and those reporting a deterioration came to -32 percentage points (against -47.3 points in the March survey), mainly reflecting the less negative opinions of firms in the service sector.
There was also an improvement in expectations of investment spending in 2013 overall; the balance between the proportion of firms forecasting an increase and those expecting a contraction went from -18.9 percentage points in the previous survey to -13.3 points. In the service sector, this balance rose significantly, by about 10 percentage points.
Investment spending in the second half 2013 is expected to be similar to that in the first half of the year: the balance between replies forecasting an increase and those expecting a contraction was -2.6 percentage points, and about 50 per cent of the firms expected investment spending to remain constant.
Firms' liquidity and access to credit
Firms' expectations of their liquidity position in the next three months are slightly better than in the March survey: 25.6 per cent expected it to be inadequate (down from 27.2 per cent), while those considering it more than adequate rose to 13.2 per cent from 12.3 per cent. The situation continues to be better for larger firms.
Credit access continues to be difficult. The proportion of firms reporting a deterioration of borrowing conditions came to 26.9 per cent, down slightly from 28.8 per cent in the March survey.
Employment
Expectations for employment in the near term did not improve: the proportion of firms expecting to increase staff in the next three months remained just under 10 per cent, while those expecting their employment to diminish remained around 24 per cent.
Construction firms
As in the March survey, construction firms’ opinions of the general economic situation of the country were more unfavourable than those of industrial and service firms: the negative balance between assessments of an improvement and those of a deterioration came to more than 60 percentage points; the probability assigned to a more favourable scenario over the next three months was 8 per cent on average.
Construction firms reported that the trend of total demand for their work had been less unfavourable in the second quarter than in the first. Some 34.4 per cent of these firms reported a fall in demand (49.9 per cent in March), while only 10.1 per cent indicated an increase (up from 7.1 per cent in March). Assessments for the present quarter have improved strongly, becoming slightly positive: the balance between forecasts of an increase or a decrease is 0.8 percentage points (compared with -20 points). This balance remains negative however (-5.1 percentage points) in the case of firms which earn at least a third of their revenue in residential building.
Expectations of business conditions for construction firms are improving. The balance between the proportion of firms expecting favourable developments in the next three months and those expecting a deterioration came to -19.7 percentage points (compared with -44.8 points in the previous quarter). In the next three years 69.7 per cent of construction firms expect better business conditions against 12.5 per cent which forecast worsening conditions.
Compared with the March survey, the proportion of firms reporting a deterioration of investment conditions decreased (to 43.1 per cent); there is a clear preponderance of expectations of a reduction in investment in 2013 compared with 2012.
As regards employment levels over the next three months, construction firms expect a more pronounced reduction in staff than do firms in the rest of industry and in the services sector.
