The interviews for the latest Banca d’Italia – Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 1 and 17 December 2014. A total of 1,000 companies with 50 or more employees took part, of which 417 operate in industry excluding construction, 406 in services and 204 in construction firms with 50 or more workers.
The main results for firms in services and industry excluding construction
Inflation expectations for Italy and changes in firms’ prices
Expectations for consumer price inflation remained very modest in December, including for the relatively long term, although they were revised very modestly upwards (by 0.1 percentage points for all time horizons) by comparison with the September survey. Six-month expectations rose to 0.4 per cent, those for a year to 0.5 per cent and those for two years to 0.7 per cent; those three to five years ahead rose to 0.9 per cent.
Firms reported that they had lowered their prices by an average of 0.3 per cent in the last year (0.2 per cent in the September survey). For the next twelve months they expect to raise list prices by just 0.2 per cent (0.7 per cent in September). This sharp downward revision was due above all to an adjustment of the forecasts of industrial firms. Slack demand and competitors’ prices continued to be the main factors in the significant price moderation.
Assessment of the general economic situation
The fourth quarter saw a slight attenuation of firms’ pessimism concerning the general economic situation. The percentage balance between judgments of improvement and deterioration, which had gone sharply negative again in September, recovered modestly, from -28.7 to -23.1 percentage points. About two thirds of the respondent firms, slightly more than in the previous survey, saw the economic situation as stable. The average probability assigned to an overall economic improvement in the next quarter was unchanged at 11.9 per cent.
Demand
Firms’ evaluations of trends in the demand for their products in the last quarter were marginally less unfavourable than in September. The negative balance between reports of increase and decrease narrowed to 5.8 percentage points, from 6.8 in the previous survey. Opinions on the short-term outlook, however, worsened again, the positive balance shrinking from 5.5 to 2.1 percentage points.
Assessments of foreign demand, current and above all expected, remain more favourable, although the positive balance between reports of improvement and deterioration in the last three months fell to 12.6 percentage points, the lowest level recorded since December 2013. However, short-term expectations for foreign demand improved, the difference between forecasts of expansion and contraction increasing by more than 6 percentage points to 25.8 points.
Assessment of business conditions
Expectations three months ahead concerning business conditions for firms continue to be dominated by predictions of stability (75.8 per cent, up from 71.9 per cent). The negative balance between judgments of improvement and deterioration was attenuated, from 13.6 points in September to 6.8 points in December. Firms do not expect their business conditions to be affected by changes in the terms of credit, but they do fear uncertainty ascribed to economic and political factors.
Expectations on business conditions three years ahead were slightly improved. The positive balance between forecasts of improvement and deterioration edged up from 39.3 percentage points in September to 41.7 in December.
According to 44.2 per cent of the respondent firms, in the past two years the "normal" level of activity has diminished. In September, when this question was first asked, 42.0 per cent had made this judgment; the share judging the level to have increased declined from 24.4 to 22.7 per cent.
Investment conditions
Firms gave more unfavorable assessments of the conditions for investing than in September. The negative balance between responses of improvement and deterioration widened from 8.9 to 15.0 percentage points. The overall trend was the resultant of worsening judgments in industry excluding construction and a slight improvement in services.
Investment in the first half of 2015 should be broadly at the same level as in the second half of 2014; 48.9 per cent of firms expected unchanged investment spending, while the positive balance between expectations of increase and decrease narrowed to 3.2 percentage points. The December survey also asked specifically about non-construction investment, finding that 57.9 per cent of respondents expect stabilization, while the balance between forecasts of expansion and contraction was only marginally negative, by 0.7 percentage points.
Investment plans for all of 2015 also suggest capital formation in line with 2014. About 48.2 per cent of firms expected investment spending to be unchanged for the year, while the balance between forecasts of increase and decrease came to 3.6 percentage points. Net of the
construction sector, the outlook was slightly less positive: the share of firms expecting stabilization came to 58.2 per cent and the balance between predictions of increase and decrease was just barely positive at 0.2 points.
Some 33.5 per cent of the respondents judged that in the past few months they had gotten past the worst of the recession, compared with 27.6 per cent in the September survey. The portion expecting a substantial increase in production in the next few months also rose, from 34.1 to 35.5 per cent. Industrial firms were more positive than the average in their assessments both of the present situation and of the outlook.
Liquidity and access to credit
The conditions of access to credit were basically unchanged from the previous survey. The negative balance between firms reporting that during the quarter access had become easier and those reporting greater difficulty eased slightly, from 3.1 to 2.4 percentage points; there was an improvement in the balance in the service sector, partly offset by a worsening in industry.
Expectations concerning short-term liquidity were also broadly unchanged. The share of firms seeing their liquidity over the next few months as insufficient rose from 19.1 to 19.9 per cent, but those considering it to be more than sufficient also increased, from 17.4 to 18.5 per cent.
Employment
Employment forecasts for the coming months too were practically unchanged. The share of firms expecting to increase their staff in the next three months fell from 20.4 per cent in September to 19.9 per cent in December, while those expecting to reduce staff held at 11.8 per cent.
Construction
Builders’ pessimism over the general economic situation moderated slightly in December, the negative balance between assessments of improvement and deterioration stood at 34.9 percentage points, compared with 37.9 points in September. However, the probability of a better scenario in the next three months declined from 7.8 to 7.5 per cent.
Judgments on developments in demand for the reporting firms' own services were marginally better, the negative difference between reports of expansion and contraction narrowing from 14.3 to 13.0 percentage points since the previous survey. Meanwhile, the positive balance between short-term expectations of increase and decrease slipped further, from 4.1 to 2.9 points; and for firms that draw more than a third of their turnover from residential building, the balance turned negative by 8.2 points.
Expectations concerning firms’ operating environment improved slightly between September and December. The negative balance on assessments for the coming three months moderated from 20.6 to 18.3 percentage points. The firms cited uncertainty due to economic and political factors as the primary obstacle to their activity. Expectations for the three-year horizon deteriorated, the positive balance between firms expecting improvement and deterioration slipping from 40.1 to 36.3 percentage points.
Some 54.9 per cent of the firms interviewed reported a reduction in their "normal" level of activity over the past two years; this was 3 percentage points less than in September. At the same time the percentage of firms that reported no change or that could not answer this question increased.
Assessments of investment conditions in the previous quarter worsened in the construction industry as well. The negative balance between judgments of improvement and deterioration widened from 17.8 to 22.9 percentage points. Most firms expected their investment spending to be continue in the first half at about the pace as in the second half of last year, and also to be the same in 2015 as a whole as in 2014. At both horizons the firms forecasting a decrease in investment outnumbered those expecting an increase.
The share of builders reporting that they had passed the worst of the recession in the past few months rose from 22.0 in September to 24.2 per cent in December, but the portion expecting a strong increase in output in the coming months fell from 33.8 to 29.2 per cent.
Construction firms generally expected a further decrease in their work force over the next three months. The negative balance between responses of increase and decrease widened from 18.6 to 20.3 percentage points.
