The interviews for the latest Banca d’Italia – Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 2 and 24 September 2013. A total of 801 companies with 50 or more employees took part, of which 392 operate in industry excluding construction and 409 in services. The survey also polls construction firms with 50 or more workers; in September 2013 the construction sample consisted of 210 firms.
The main findings
Inflation expectations in Italy and change in companies’ selling prices
In September inflation expectations for the next six months stabilized at 1.5 per cent. Forecasts for one and two years ahead remained unchanged from the previous survey in June at 1.6 and 1.7 per cent respectively.
Businesses reported a modest increase of 0.2 per cent in their selling prices in the last twelve months. For the next twelve months, they forecast a more marked increase of 0.8 per cent. Cost pressures on raw materials were judged to be growing slightly compared with the previous survey, while there was less of a tendency towards price moderation in response to weak demand.
Assessment of the general economic situation
Firms' assessments of the general economic situation were decidedly less pessimistic in the third quarter of 2013, continuing the trend that emerged in the previous survey. The negative balance of those expecting an improvement or a worsening of the current situation was further reduced to -17.4 percentage points from -49.9 points in the June survey. The more favourable trend in opinions was of a similar size both in the industry and in the services sectors. The average probability of an improvement in the economic situation in the next three months rose slightly to 12.7 per cent from the 9.9 per cent recorded in the previous survey, and was more noticeable among the largest firms (20.5 per cent).
Demand
The proportion of operators who saw a negative trend in demand for their products in the third quarter continued to shrink: the balance between those seeing an improvement and those seeing a deterioration fell to -9.4 percentage points (-22 points in June), the lowest for the last two years. The improvement was more marked among exporting firms. The balance between those seeing an improvement and those seeing a deterioration in the prospects for demand in the short term became positive again, standing at 2 percentage points (from -6.9 points in the previous survey.
Firms' assessments of the cyclical situation of foreign demand for their own products in the third quarter of 2013 improved: the balance between positive and negative opinions was 17.5 percentage points (from 7.5 points in the June survey). The outlook for the quarter under way remained favourable, basically unchanged from the previous survey at 21.9 percentage points.
Assessment of firms’ business conditions
Expectations concerning firms’ business conditions over the next three months, although still pessimistic, were less unfavourable than in the previous survey. The balance between responses indicating an improvement or a deterioration was -12.3 percentage points, from -17 in June. More than 70 per cent of firms expected conditions to remain the same, in line with the previous survey. Industrial firms’ expectations showed a more marked improvement. The negative influence of credit conditions on the business environment continues.
Looking further ahead (three years), opinions remained more optimistic. The share of firms indicating an improvement in business conditions is growing (64.4 per cent against 61.1 per cent in June), especially among those in the service sector (60.4 per cent against 55.1 per cent in June).
Investment
Investment conditions in the third quarter were considered to be less unfavourable than in the second. The negative balance between replies indicating an improvement or a deterioration fell to -13.7 percentage points (from -32 points in the June survey), returning to levels recorded before the summer of 2011.
Firms' liquidity and access to credit
Difficulties in accessing credit appear to be easing compared with the second quarter. The share of firms indicating a deterioration in financing conditions came to 20.8 per cent, down from the 26.9 per cent recorded in the June survey.
Firms’ expectations concerning their liquidity position over the next three months improved slightly compared with the previous survey: the share of those who expected it to be inadequate fell to 21.4 per cent, from 25.6 per cent in June, while those considering it more than adequate increased to 15.6 per cent, from 13.2. The picture remains relatively more favourable for the largest firms.
The economic situation and general government payments
Around 30 per cent of firms declared they are owed money by general government; just over 10 per cent of reported they had recently collected a substantial sum (16.2 per cent in the service sector and 5.4 in industry). Some 4.2 per cent of firms receiving arrears said they would be funding new investments, almost 25 per cent would be settling debts with suppliers and employees, and 30.3 per cent were going to reduce their bank debt.
Some 28.5 per cent of firms thought that after the summer they had passed the worst stage of the economic crisis (31.1 per cent in industry and 25.6 in the service sector). As regards growth prospects for the coming months, almost 34 per cent of the firms in the sample expected a solid improvement in their own production/work rates, especially in industry (37.8 per cent.
The survey showed that the proportions of firms expecting a solid improvement in their production/work rates in the coming months was significantly higher among those who had received arrears from general government compared with the rest of the sample.
Employment
Expectations for employment in the short term are not improving: the proportion of firms estimating an increase in staff numbers in the next three months stayed at just under 10 per cent; those expecting a decline fell slightly from 24.5 per cent in the last survey to 23.1 per cent.
Construction firms
Compared with the June survey, there was a marked moderation in the negative assessment of the current economic situation in Italy, including on the part of construction firms. The negative balance between assessment s of an improvement and those of a deterioration came to around 35 percentage points, from 61.8 points in the previous survey. The likelihood of the situation improving in the next three months increased slightly, rising from 8 to 9.4 per cent.
Construction firms’ assessments of total demand for their work in the preceding quarter remained unfavourable and basically in line with their opinions in the previous survey. For 34.2 per cent of firms, there had been a deterioration in demand while only 8.7 per cent reported an improvement. Assessments for the current quarter were slightly worse: the balance between forecasts of an increase or a decrease in demand was -4.6 percentage points (compared with 0.8 points in the previous survey).
Expectations for business conditions for firms in this sector are worsening. The balance between firms expecting favourable or unfavourable developments in the next three months came to -27.6 percentage points (compared with the previous -19.7 points). Construction firms are more prudent than service firms and industrial firms, including over the 3-year time horizon: 55.1 per cent (against 69.7 per cent in the previous survey) expects better business conditions while 21.8 per cent (against the previous 12.5 per cent) thinks conditions will worsen.
Among construction firms, 25 per cent reported receiving payment arrears from general government. Of these, most of them (52.7 per cent) stated they in tended to use the sums received to reduce their exposure to the financial system while 32.6 per cent will use the funds to settle debts with employees or suppliers; and only 5 per cent intends to use arrears payments to finance new investments. A quarter of the firms thought that after the summer they had passed the worst stage of the economic crisis. As regards growth prospects for the coming months, just over 30 per cent of construction firms in the sample expected a solid improvement in their own production rates.
As regards staff numbers over the next three months, construction firms continue to forecast a decline.
