The interviews for the Banca d’Italia – Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 1 and 18 September 2015. A total of 987 firms with 50 or more employees took part, of which 389 operate in industry excluding construction, 397 in services and 201 in construction.
The main findings for firms in services and in industry excluding construction
Inflation expectations in Italy and change in selling prices
In September consumer inflation expectations were revised upwards with respect to the preceding survey across all time horizons, albeit to a much lesser extent for the more distant future. Six-month expectations rose to 0.6 per cent, those for a year to 0.7 per cent (from 0.3 and 0.5 per cent in the previous survey). Expectations two years ahead and for the next three to five years were revised down by 0.1 per centage points to 0.9 and 1.1 per cent, respectively.
All in all, firms reported that their selling prices were unchanged on an annualized basis (-0.2 per cent in June): the decrease reported by large firms (those with at least 1,000 employees) was offset by the increase recorded by other firms. Firms in services and in industry excluding construction expect selling prices to expand moderately over the next twelve months. This increase is in line with the expectations reported in the previous survey (0.7 per cent).
As in June, the recovery in the euro prices of raw materials, the increase in labour costs and, in small measure, the improvement in demand were reported to have driven list prices, while competitors' pricing policies appeared to hold them back.
Assessment of the general economic situation
The positive balance between reports of improvement and reports of deterioration in the general economy widened significantly to 25.9 percentage points, up from 15.8 points in June. Most, albeit slightly fewer, firms continued to view Italy’s general economic situation as stable. The average probability assigned to an improvement of the economic situation in the next three months also increased, to 19.7 per cent from 17.9 per cent.
Demand
Firms’ judgments concerning trends in demand remained favourable, albeit slightly less so than in the previous survey. The balance between reports of increases and decreases in demand for the respondent firms’ products in the last quarter narrowed to 6.6 percentage points, from 11.5 percentage points in June. The reports were more favourable among firms in industry excluding construction. Assessments of the short-term outlook improved: the balance between positive and negative expectations for demand rose by more than 4 percentage points to 21.6 points for firms in services and in industry excluding construction.
Firms' assessments of foreign demand for their products continues to be favourable, less so for current demand compared to June’s survey, and more so for demand over the next three months.
Assessment of business conditions
Firms’ expectations concerning the economic conditions in which they will be operating over the next three months continued to be marked by cautious optimism, although predictions of stability continued to be largely prevalent (74.6 per cent from 78.9 in June). The balance between firms expecting an improvement and those expecting a deterioration, positive since the March survey, rose to 10.2 percentage points from 5.4 points in June; the rise was particularly marked in firms in industry excluding construction. Economic activity is expected to continue to benefit from the positive contribution of demand, the euro exchange rate, and, unlike the previous survey, oil prices. Compared to June, the extent to which economic and political uncertainties are acting as a brake on economic activity has increased, albeit marginally.
The percentage of firms reporting a decrease in their "normal" level of activity in the last two years declined from 39.5 per cent to 36.2; in contrast, 30.6 per cent reported an increase (26.0 per cent in June).
Investment conditions
Firms’assessments of investment conditions remained favourable, and more so compared with the last quarter. The balance between responses indicating an improvement and those indicating a deterioration rose to 11.5 per cent from 8.7 per cent in June; this improvement is about the same for manufacturing and service firms.
The share of firms expecting an increase in nominal investment expenditure in the second half of 2015 compared with the first is 12.1 percentage points greater than those expecting a decrease: expectations are particularly positive amongst service firms and medium-to large-sized firms (between 200 and 999 employees). Nearly 60 per cent of firms reported that nominal investment spending was unchanged from the first half of the year.
For 2015 as a whole, the percentage change between expectations of an increase and a decrease in investment spending rose to 17.3 points from 14.1 points in the previous survey, largely due to the upward adjustment in planned investment by firms operating in the North-West, South and Islands. Roughly half of respondent firms expect total investment expenditure to remain unchanged compared with 2014, as in the previous survey.
Some 44.4 per cent of firms declared that they have overcome the most difficult phase of the economic cycle in recent months, slightly up from 43.9 in June. The share of firms predicting a solid improvement in their output in the coming months fell from 46.4 to 43.0 per cent.
Liquidity and access to credit
The terms of access to credit have eased further, continuing a trend under way since December 2012, albeit to a lesser extent compared to the previous survey. In the last quarter, the balance between the share of firms reporting easier access to credit compared with the previous quarter and those indicating a deterioration remained positive, though falling to 2.7 percentage points from 7.8 points. In particular, 10.5 per cent of firms report greater ease of access to credit (compared with 14.4 per cent in June), while 7.8 per cent report a tightening (compared with 6.6 in June); the deterioration was more pronounced among the largest firms and those located in the North.
The percentage of firms that expect to have inadequate liquidity positions in the next three months fell to 14.9 per cent, from 15.6 per cent in June; the share of those considering it more than adequate also declined, to 21.1 per cent from 22.2 per cent. In this survey firms were asked if they had red uced their bank deposits in the previous three months, net of the usual seasonal fluctuations, and the great majority of firms, especially in industry, reported no such reduction (76.2 per cent). For firms reporting a contraction in deposits, the factor that had the greatest impact was a decrease in receipts.
Employment
Expectations for employment in the short term worsened slightly. The share of firms estimating an increase in staff numbers in the next three months fell to 16.5 per cent, from 19.1 per cent in June; those expecting a decline fell slightly from 14.9 per cent in the last survey to 14.4 per cent. More than two thirds of firms expect the situation to remain basically unchanged. The overall balance, though still slightly positive at 2.1 percentage points, reflects mixed trends, and was negative for the largest firms, service firms and those operating in the Centre and South.
Construction firms
In September, the optimism of construction firms concerning the general economic outlook strengthened, continuing the trend that emerged in the previous two surveys, with the balance between expectations of an improvement and a deterioration increasing to 11.6 percentage points (from 2.1 and -34.9 percentage points in June and December respectively). The probability assigned to an improvement in the scenario in the next three months increased slightly to 14.2 from 12.8 per cent.
Construction firms' assessments of demand for their work in the preceding quarter remained prevalently stable at 68.4 per cent (74.5 per cent for firms that draw more than a third of their turnover from residential building). However, the gap between firms reporting an improvement and those reporting a deterioration turned negative, at -1.5 percentage points, from 2.2 points in June, largely reflecting the decline observed for companies most active in the residential sector. The positive balance between short-term forecasts of an increase or a decrease in demand was basically unchange d at 9.8 percentage points.
There was an increase in the percentage of firms expecting stable operating conditions in the next quarter, from 77.8 per cent in June to 80.5 per cent, even though the balance between firms expecting favourable or unfavourable developments in the next three months remained slightly negative. Apart from the uncertainty ascribable to economic and political factors, trends in firms' own prices appear to be an obstacle, albeit to a limited extent; positive stimuli to the economy appear to be coming mainly from increased demand for the firms’ services (both new and pre-existing orders), an improvement in the terms of access to credit, and oil price developments.
Expectations three years ahead remained positive, in line with the previous survey, with the balance between firms expecting better conditions and those expecting a deterioration reaching 49.4 percentage points, from 49.1 points in June.
The percentage of firms reporting a decrease in the "normal" level of activity in the last two years was 52.9 per cent, a decrease over the March figures, while the share of those reporting an increase rose to 16.5 per cent from 11.7 per cent.
The firms’ views concerning investment conditions remained positive: in the last quarter the percentage of firms reporting a deterioration fell to 8.5 percentage points, from 12.4 points in June, while the great majority of firms reported stable conditions (76.6 per cent, up from 72.5 per cent in June). Nonetheless, the balance between firms expecting an increase in fixed investment expenditure and those expecting a decrease in the second half of 2015 over the first half was negative (-6.7 percentage points). For 2015 as a whole compared to 2014, the balance was -6.5 points, down from -1.2 points, largely reflecting the downturn experienced by firms mainly involved in residential construction.
The percentage of firms reporting that in the previous months they had overcome the most difficult phase of the downturn has stabilized at around 36 per cent, while the share of those expecting a ‘substantial increase’ in output in the upcoming months rose from 44.0 to 45.1 per cent.
Expectations concerning employment conditions in the upcoming months are slightly more pessimistic than in the previous survey. The negative gap between firms expecting an increase in the work force and those expecting a decrease narrowed, from -24.3 percentage points in June to -17.5 percentage points.
Firms’ judgments on the conditions of access to credit worsened: the balance worsened, from -1.7 to -10.3 percentage points.
