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 17 December 2013. A total of 784 companies with 50 or more employees took part, of which 381 operate in industry excluding construction and 403 in services. The survey also polls construction firms with 50 or more workers; in September 2013 the construction sample consisted of 194 firms.
The main findings for firms in services and in industry excluding construction
Inflation expectations in Italy and change in firms' prices
In December 2013 firms revised their consumer inflation expectations for the next six months sharply down, to 0.9 per cent from 1.5 per cent in September, in line with the slowdown registered in the last quarter of the year. Expectations one year and two years ahead were also lowered, respectively from 1.6 to 1.1 and 1.7 to 1.2 per cent.
Firms reported that their own sales prices rose 0.4 per cent on an annual basis. Over the next twelve months they expect their prices to continue to increase quite modestly (0.9 per cent on average). Pressure from labour costs was slightly attenuated compared with the previous survey, while slack demand heightened the tende ncy to price moderation somewhat.
Of the firms whose products are subject to the ordinary VAT rate (over 80 per cent of the sample), 61.5 per cent reported that they had not passed the VAT increase from 21 to 22 per cent on 1 October through to sales prices. The main factors in this decision were the state of demand and competitors’ pricing policies. Just 23 per cent of the respondents said they had passed the entire rise through; the remaining firms passed it on only in part.
Assessment of the general economic situation
In December the majority of firms saw the general economic situation of the country as stable: 64.2 per cent of industrial firms and 60.8 per cent of service firms. The balance between judgments of improvement and deterioration in industry and services sectors as a whole, after moderating in the two previous surveys, widened to -27.9 percentage points from -17.4 but remained among the most moderate values registered in the last six quarters. The average probability assigned to an improvement of the economic situation in the next three months held unchanged at 12.5 per cent.
Demand
The balance between reports of increases and decreases in demand for the respondent firm’s products in the fourth quarter remained practically stable and negative at 9.2 percentage points. For exporters, however, it regained came back into positive territory for the first time since September 2012. The overall balance on short-term demand expectations slightly worsened, to -0.7 percentage points from +2 points in the previous survey, reflecting the deterioration in the expectations of the firms less active in foreign markets.
The assessments of foreign demand for the firm's products remained favourable in the fourth quarter, though slightly less so than in the September survey. The net positive balance between reports of increase and decrease was 12.8 percentage points, down from 17.5. The short-term expectations for export demand also remained favourable, by about the same amount as in the previous survey.
Assessment of business conditions
The respondents’ expectations concerning the economic conditions in which they will be operating over the next three months remained unfavourable, with a negative balance between improvement and deterioration about the same as three months earlier at 13 percentage points. Roughly 70 per cent nevertheless continued to expect unchanged conditions. Service firms' expectations improved modestly, reflecting less unfavourable expectations on demand and on credit conditions.
The medium-term outlook, three years ahead, remains positive, as in the previous survey. The proportion of firms expecting operating conditions to get better was 62 per cent, while only 18.2 per cent expected them to worsen.
Investment conditions
The balance between reports of improvement and deterioration in the conditions for investment, which had been attenuated significantly in the previous two surveys, worsened to -19 percentage points, from -13.7 in September. The proportion of firms reporting unchanged conditions was 67.8 per cent, down from 72.5 per cent. Trends in industry and services were similar.
Investment expenditure in the first half of 2014 should be about the same as in the second half of 2013: the balance between firms expecting to increase and to decrease it was positive by 0.9 percentage points, and 53.2 per cent foresaw unchanged investment outlays. The balance for service firms was slightly positive (1.9 points), while for industrial firms it was practically nil.
Expectations on investment for the current year were also basically stable with respect to 2013. The percentage balance between those planning increases and decreases was negative by 2.1 points, with slightly more unfavourable indications coming from service firms and firms with over 200 workers. Overall, just over half the respondents expected investment to remain constant.
Liquidity and access credit
The difficulty of access to credit appears to have eased moderately compared with the third quarter. The balance between firms reporting better and worse terms was negative by 15.3 percentage points, a slight improvement from 17.5 points in September.
Expectations for liquidity over the coming three months also improved a bit. The share of firms' saying their liquidity will be insufficient came down from 21.4 to 19.5 per cent, while those deeming it more than sufficient held steady at 15.9 per cent. The assessments of service firms were relatively more favourable than those of the industrial sector.
The short term economic situation and general government payments
Some 35 per cent of the respondent firms said they had arrears credits with general government bodies, and 11 per cent reported that they had recovered substantial amounts in the second half of the year (16.8 per cent of service and 5.4 per cent of industrial firms). As to the use of these funds, 6.7 per cent indicated their allocation to new investment, 30 per cent to the reduction of liabilities towards suppliers and employees, and 41.5 per cent to paying down bank debt. There was little difference from the situation found by the September survey.
A higher proportion now felt that they had passed the worst stage of the economic situation since the start of summer (31.8 per cent in industry and 32.7 per cent in services, compared with an overall figure of 28.5 per cent in September). Looking to the months ahead, 33.3 per cent of the firms in the sample expected a substantial increase in their own production rates (35.7 per cent in industry and 30.7 per cent in services), in line with the previous survey. Favourable assessments were more common among export-oriented firms.
Employment
Expectations on staffing levels remain pessimistic in the short term. The portion of firms counting on an expansion of their work force over the next three months was just under 10 per cent, while those forecasting a contraction accounted for roughly 23 per cent.
Construction firms
The outlook of construction firms concerning the general economic situation turned more pessimistic in December, with the balance between expectations of improvement and deterioration from -34.9 to -45.7 percentage points. The probability of an improvement in the scenario in the coming three months remained almost unchanged at 9.6 per cent.
Against this backdrop, assessments of demand for the reporting firm’s own services nevertheless improved, though remaining negative. The proportion reporting an increase in demand rose from 8.7 to 13.9 per cent, while the proportion reporting a decline held at 33.6 per cent. The negative balance on short-term demand expectations was about the same as in the September survey at around 5 percentage points, but the share expecting constant demand rose from 60.4 to 67.5 per cent.
Construction firms’ expectations on operating conditions were also slightly more favourable, though still negative. The balance on assessments for the next three months increased from -27.6 to -24.8 points. Expectations three years ahead also gained a bit: 56.4 percent expected better conditions, compared with 55.1 per cent in the previous survey, while the proportion expecting worse conditions came down from 21.8 to 17.1 per cent.
Assessments of the conditions for investment worsened slightly between the third and fourth quarters but remained at a level among the highest recorded since construction firms began to be surveyed. Expectations of higher investment in 2014 than in 2013 prevailed.
The portion of construction firms saying that since the summer they had passed the worst of the cyclical phase was 25.2 per cent, about the same as in the previous survey. But the percentage expecting a substantial increase in activity in the coming months rose significantly, from 30.2 to 35 per cent.
In the construction industry, 26.0 per cent of the sample reported having received payments of credits arrears from general government during the second half of the year. Of these, 58.3 per cent said they would allocate the funds to pay down their debt to the financial system and 29.2 per cent to reduce their liabilities towards employees or suppliers.
On employment, construction firms continued to anticipate a decrease in their work force over the coming months.
