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 20 June 2014. A total of 819 companies with 50 or more employees took part, of which 401 operate in industry excluding construction and 418 in services.The survey also polls construction firms with 50 or more workers; in June 2014 the construction sample consisted of 218 firms.
The main findings for firms in services and in industry excluding construction
Inflation expectations in Italy and change in firms' prices
In June 2014 firms shaved 0.1 percentage points off their consumer inflation expectations for the next six months and two years ahead with respect to the March survey, to 0.7 and 1.0 per cent respectively, while expectations one year ahead were stable at 0.9 per cent. Forecasts over a longer horizon of 3 to 5 years, surveyed for the first time in March, also remained unchanged at 1.2 per cent.
Firms continued to report that their sales prices were unchanged on an annual basis. Over the next twelve months they expect prices to return to modest growth of 0.7 per cent (compared with 0.9 per cent in the previous survey). Weak demand and competitors’ pricing policies were confirmed as the main contributions to price moderation while the influence of the pressures from labour costs and raw materials prices is expected to remain limited.
Assessment of the general economic situation
In June most firms viewed the general economic situation of the country as being stable: 67.9 per cent, unchanged from the previous survey. The negative balance between judgments of improvement and deterioration narrowed with respect to the previous quarter, from -12.1 percentage points to -0.5 percentage points, thanks to the sharp improvement in industry excluding construction. The average probability assigned to an improvement of the economic situation in the next three months was unchanged at 16.1 per cent.
Demand
Firms’ judgments concerning current and forecast demand were more favourable. For the first time in three years the balance between reports of increases and decreases in demand for the respondent firms’ products was positive (4.2 percentage points, from -4.9 in the March survey), thanks to the very strong performance of industry. Only firms operating mainly on the domestic market continued to report a negative, but improving, balance. The balance of short-term expectations for demand also improved, rising from 14.4 to 16.3 percentage points, positive for the second quarter in a row.
The assessment of foreign demand for firms’ own products improved again: the balance between reports of increases and decreases in the last quarter increased from 18.1 to 27.1 percentage points. Short-term expectations for export demand also improved.
Assessment of business conditions
Firms' expectations concerning the economic conditions in which they will be operating over the next three months were characterized by cautious optimism, although forecasts of stability prevailed (76.0 per cent). For the first time since June 2007, the balance between those seeing an improvement and those seeing a deterioration turned barely positive by 0.2 percentage points, mainly reflecting the assessments of industrial firms. The negative influence on operations of tensions over access to credit appear to have dissipated in both sectors.
The survey also asked for firms’ assessments of the effect on business conditions of the period of prolonged appreciation of the euro. While most firms reported only negligible effects (69.9 per cent, of which 59.3 per cent in industry alone), the balance between the responses indicating a favourable impact and those indicating an unfavourable one was -19.3 percentage points. Industrial firms expressed greater concern: around one third believe that exchange rates have had a detrimental effect, above all owing to the competitive pressures exerted by markets outside of the euro area.
The medium-term outlook, three years ahead, was again positive. The proportion of firms expecting operating conditions to get better was 64.0 per cent, while 12.4 expected them to get worse.
Investment conditions
Firms' judgments on investment conditions were favourable: the balance between responses indicating an improvement and those indicating a deterioration rose from -7.4 percentage points in March to 1.9 percentage points, positive again for the first time since September 2010. The judgments of construction firms were more favourable than those reported by the services sector.
Investment expenditure in the second half of 2014 is forecast to exceed that in the first half of the year, though 56.7 per cent of firms said they expected it to remain constant; the balance between firms expecting to increase investment and those expecting to decrease it is 11.9 percentage points. Firms most strongly oriented to foreign markets were relatively more optimistic.
Expectations on investment outlays for the current year point to a modest recovery with respect to 2013. The percentage balance between those planning increases and decreases was equal to 13.1 percentage points, up from 3.7 percentage points in March, reflecting more positive indications from industrial firms. Overall, around half of the operators expected investment to remain constant.
Liquidity and access to credit
Difficulties in accessing credit appear to have eased. The balance between the share of firms reporting better financing conditions compared with the previous quarter and those indicating a deterioration was -4.1 percentage points, up from -13.2 percentage points in March.
Firms' expectations concerning their liquidity position over the next three months improved slightly compared with the previous survey: the share of those expecting it to be inadequate fell from 19.5 per cent in June to 17.8 per cent, while those considering it more than adequate increased from 18.7 to 19.7 per cent. The picture remains relatively more favourable for the largest firms.
Employment
Expectations for employment in the short term improved from -5.5 per cent in March to -2.0 per cent. The proportion of firms estimating an increase in staff numbers in the next three months rose to 14.3 per cent, from 13.4 per cent in March; those expecting a decline fell from 18.9 per cent in the last survey to 16.3 per cent.
Construction firms
The views of construction firms concerning the general economic outlook turned less pessimistic in June, with the negative balance between expectations of an improvement and a deterioration at -14.1 percentage points, up from -29.9 in the March survey. The probability assigned to an improvement in the scenario in the next three months rose slightly, to 11.3 per cent, from 10.4 per cent in March.
Assessments of demand for the reporting firms’ own services also improved somewhat, with 16.6 per cent of firms reporting an improvement and 23.8 per cent reporting a deterioration (the balance was -19.0 in March). The positive balance on short-term demand expectations improved again, rising from 7.0 to 12.7 percentage points.
Firms' assessments of the economic conditions in which they are operating improved only slightly. The negative balance on assessments for the next three months fell from -10.9 to -9.4 per cent. Expectations three years ahead recorded a modest improvement, with 62.8 per cent of the firms now expecting better conditions, compared with 61.8 per cent in the previous survey, while the proportion expecting worse conditions fell from 14.6 to 13.7 per cent.
Pessimism over the conditions for investment attenuated in the second quarter of this year, with the negative balance between expectations of an improvement and a deterioration down from -25.0 percentage points in the first quarter to -8.6 percentage points. Firms continue to predict that investment expenditure would decline in 2014 compared with 2013, but by less than in the previous survey, with the balance rising from -18.7 percentage points in the March survey to -4.0 percentage points.
The portion of construction firms reporting that they had passed the worst of the cyclical phase from the spring months onwards was 25.5 per cent, similar to the March figure; the percentage expecting a “substantial increase” in output in the coming months remained basically unchanged, at 38.3 per cent.
On employment, construction firms continued to anticipate a decrease in their work force over the coming three months.
