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 21 March 2014. A total of 829 companies with 50 or more employees took part, of which 404 operate in industry excluding construction and 425 in services. The survey also polls construction firms with 50 or more workers; in March 2014 the construction sample consisted of 243 firms.
The main findings for firms in services and in industry excluding construction
Inflation expectations in Italy and change in firms’ prices
In March 2014 firms revised their consumer inflation expectations for the next six months slightly down, to 0.8 per cent from 0.9 per cent in December. Expectations one year and two years ahead were also lowered, respectively from 1.1 to 0.9 and 1.2 to 1.1 per cent. For the first time the survey also asked for firms’ forecasts of consumer inflation over a longer horizon of three to five years; the responses put the rate at around 1.2 per cent.
Firms reported that their own sales prices were unchanged on an annual basis. Over the next twelve months they expect their prices to increase again at a modest rate of 0.9 per cent on average. Pressure from labour costs and raw materials prices remains limited, on a par with the previous survey, while slack demand and competitors’ pricing policies should contribute to price moderation.
Assessment of the general economic situation
In March the majority saw the general economic situation of the country as stable: 70.7 per cent of industrial firms and 65.0 per cent of service firms. The negative balance between judgments of improvement and deterioration in both sectors overall was sharply attenuated compared with the December survey, from -27.9 percentage points to -12.1. The average probability assigned to an improvement of the economic situation in the next three months rose somewhat, from 12.5 to 16.1 per cent.
Demand
Judgments concerning current and above all forecast demand were more favourable than in the fourth quarter. The negative balance between reports of increases and decreases in demand for the respondent firm’s products was almost halved, from -9.2 to -4.9 percentage points, and for exporters it remained positive. The overall balance on forecasts for short-term demand improved markedly, to +14.4 percentage points from -0.7 in December and -11.9 in March 2013. The gain was especially sharp among the firms most strongly oriented to foreign markets, but now it was also extended to firms operating mainly on the domestic market, for the first time since December 2012 (when the question on the overall demand outlook was added to the questionnaire).
The assessments of foreign demand for the firm’s products grew more favourable in the first quarter. The net positive balance between reports of increase and decrease improved from 12.8 to 18.1 percentage points. The short-term expectations for export demand also improved.
Assessment of business conditions
The respondents’ pessimism concerning the economic conditions in which they will be operating over the next three months diminished notably; the negative balance between improvement and deterioration dropped to -1.4 percentage points from -13 points in the previous survey. Among firms with 200 or more workers, expectations turned positive, primarily reflecting more favourable expectations on demand.
The medium-term outlook, three years ahead, was better than in December. The proportion of firms expecting operating conditions to get better was 63.8 per cent, while only 11.4 per cent expected them to worsen.
Investment conditions
The pessimism on the conditions for investment moderated. The negative balance between reports of improvement and deterioration came to -7.4 percentage points, compared with -19 percentage points in the December survey, regaining the level recorded in the third quarter of 2011. The positive trend was more pronounced in services than in industry.
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 investment was positive by 0.5 percentage points, and 48.9 per cent foresaw unchanged outlays. The balance for service firms was slightly negative (-2.7 points), while for industrial firms it was moderately positive (3.5 points).
Expectations on investment for the current year point to a modest increase with respect to 2013, more or less as found by the previous survey. The percentage balance between those planning increases and decreases was positive by 3.7 points, reflecting more favourable indications from firms with over 200 workers. Overall, about half the respondents expected investment to remain constant.
Liquidity and access to credit
Liquidity and access to credit Judgments concerning the difficulty of access to credit remained pessimistic. The balance between firms reporting better and worse terms compared with the previous quarter was negative by 13.2 percentage points, as against 15.3 points in December.
Expectations for liquidity over the coming three months did not change significantly. The share of firms saying their liquidity will be insufficient held steady at 19.5 per cent, while those deeming it more than sufficient rose slightly, from 15.9 to 18.7 per cent. The assessments of the larger firms were relatively more favourable.
Employment
While remaining pessimistic, expectations on staffing levels in the short term improved, the negative balance between firms expecting expansion and contraction narrowing from -13.9 to -5.5 percentage points. The portion of firms counting on an increase in their work force over the next three months was 13.4 per cent, while those forecasting a contraction fell from 23 to 18.9 per cent.
Construction firms
The views of construction firms concerning the general economic outlook turned less pessimistic in March, with the negative balance between expectations of improvement and deterioration easing from -45.7 to -30 percentage points. However, the probability assigned to an improvement in the scenario in the coming three months remained stable at 10.4 percent. Assessments of demand for the reporting firm’s own services were practically unchanged. The proportion reporting an increase in demand was 12.8 per cent, while 31.8 per cent reported a decline. The balance on short-term demand expectations turned positive by 7 percentage points, compared with a negative balance of 5 points in the December survey.
Construction firms’ expectations on operating conditions were also less unfavourable. The negative balance on assessments for the next three months was more than halved, from -24.8 to -10.9 percentage points. Expectations three years ahead also gained, with 61.8 per cent of the firms now expecting better conditions, compared with 56.4 per cent in the previous survey, while the proportion expecting worse conditions came down from 17.1 to 14.6 per cent.
The prevailing pessimism over the conditions for investment was somewhat attenuated in the first quarter, the negative balance between expectations of improvement and deterioration easing from -34.1 to -25 percentage points. Nevertheless, firms forecasting lower construction spending in 2014 than in 2013 outnumbered those expecting an increase, with the balance falling from +4.7 to -18.7 percentage points.
The portion of construction firms saying that they had passed the worst of the cyclical phase during the quarter was 24.7 per cent, almost the same as in the December survey. The percentage expecting a substantial increase in activity in the coming months rose from 35 to 38.9 per cent.
On employment, construction firms continued to anticipate a decrease in their work force over the coming three months.
