The interviews for the Banca d’Italia – Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 1 and 16 December 2015. A total of 977 firms with 50 or more employees took part, of which 396 operate in industry excluding construction, 380 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 firms’ selling prices
In December firms revised their consumer inflation expectations downwards for all the time horizons considered: expectations six months ahead and one year ahead were both revised down by 0.2 percentage points to 0.4 per cent and 0.5 per cent; forecasts over a longer horizon were revised down to 0.7 per cent (from 0.9 per cent) for expectations two years ahead and down to 1.0 per cent (from 1.1 per cent) for expectations between three and five years ahead.
Firms on average reported that their selling prices decreased slightly compared with one year earlier (although they had remained stable in September) owing to larger firms (those with at least 1,000 workers) and firms in industry revising their expectations. Selling prices were expected to grow by 0.6 per cent on average in the next twelve months, both in industry excluding construction and services, in keeping with the findings of the previous survey.
An increase in selling prices in the next twelve months mainly reflects rising labour costs and, to a lesser extent, signs of a pick-up in demand. Competitors’ pricing policies are the most significant factor in holding selling prices down.
Assessment of the general economic situation in Italy
The overwhelming majority of respondent firms, almost 70 per cent, expected the situation to remain stable. The balance between reports of improvement and reports of deterioration in the general economy, while still positive, narrowed compared with the previous quarter (12.5 percentage points), mainly owing to the less favourable opinions voiced by the more export-oriented firms. The average probability assigned to an improvement of the economic situation in the next three months decreased slightly compared with the previous quarter, returning to the levels recorded in the June survey (17.5 per cent).
Demand
The balance between positive and negative views on demand growth remained positive at 6.2 percentage points (down from 6.6 in September); the trend was more favourable for firms in industry excluding construction (8.5 percentage points) and for the more export-oriented ones. The short-term outlook, however, looked less favourable, both in manufacturing and in the services sector, with the balance between positive and negative expectations falling to 14 percentage points (down from 21.6 per cent).
Export-oriented industrial firms reported deteriorating expectations concerning foreign demand, both current and expected.
Assessment of business conditions
Firms’ expectations of the economic conditions in which they will be operating over the next three months decreased slightly. The balance between positive and negative views narrowed to 3.9 percentage points, down from 10.2 in September; the share of responses pointing to stable conditions increased to 77.7 percentage points, up from 74.6 in September. The balance narrowed for firms both in industry excluding construction and services, and especially for smaller firms (50 to 199 workers). Economic activity is expected to continue to benefit from the positive contribution of favourable exchange rates, oil prices and, even more importantly, demand. Uncertainty deriving from economic and political factors is expected to rise, albeit marginally, compared with the September survey.
Investment conditions
A majority of firms (75.7 per cent of those interviewed) thought that investment conditions will remain stable; the balance between responses indicating an improvement and those indicating a deterioration was positive at 5.3 percentage points, but lower than in September, with the reduction being more pronounced for manufacturing firms, especially export-oriented ones.
With respect to investment expenditure, the balance between firms expecting an increase in nominal expenditure on investment and those expecting a decrease is 14.5 percentage points (compared with 12.1 in September). The outlook appears brighter for firms in industry excluding construction and medium-large ones (200 to 999 workers). Some 52.0 per cent of respondent firms expect nominal expenditure on investment to remain at the levels seen in the second half of 2015.
For the year 2016 the balance between firms forecasting an increase in investment and those forecasting a decrease was similar to that of the previous survey (16.8 percentage points compared with 17.3 in 2015), mainly reflecting an upward adjustment of investment plans by firms operating in the North-East and in the South and Islands. Among respondent firms, 46.4 per cent expected total investment expenditure to remain unchanged compared with 2015, in line with the findings of the previous survey.
In this issue of the survey firms were asked whether the incentive for investment on capitalgoods (known as the ‘maxi-amortization’) provided for by the 2016 Stability Law had influenced their investment plans. Slightly over half of the firms interviewed thought it would have a positive impact, and about 13 per cent thought it would have‘no impact’or ‘little impact’. The last figure grew to 27.3 per cent among entrepreneurs who stated their intention of increasing investment expenditure in 2016. The share of firms reporting a positive impact of the investment incentive is higher in industry excluding construction, especially among the larger firms (those with more than 1,000 workers).
Some 47.6 per cent of respondent firms thought they had overcome the most difficult phase of the downturn, slightly higher than the 44.4 per cent recorded in September; the percentage of firms predicting a substantial improvement in their output in the coming months increased to 44.1 per cent, slightly higher than in the previous survey 43.0 per cent.
Liquidity and access to credit
Access to credit eased further, continuing a trend under way since December 2012. In the last quarter the balance between the share of firms reporting better financing conditions compared with the previous quarter and those indicating a deterioration increased to 3.6 percentage points, up from 2.7. Some 83.8 per cent of firms reported that their access to credit was basically unchanged (compared with 81.6 per cent in September); conditions had improved mainly for the larger firms.
Firms' expectations as to the adequacy of their liquidity position over the next three months remained basically stable at 65.9 per cent (compared with 64.0 per cent in September), while those considering it more than adequate decreased from 21.1 per cent to 17.6 per cent.
Employment
Expectations for employment in the short term deteriorated slightly. The share of firms estimating an increase in staff numbers in the next three months remained stable at the levels recorded in the previous survey (16.5 per cent); those expecting a reduction rose to 17.3 per cent, up from 14.4 per cent. The balance is narrowing mainly owing to firms in the services sector, larger firms in general and those operating in the Centre and South.
Construction firms
The optimistic views of construction firms concerning the general economic outlook were confirmed in December, in keeping with the last three surveys. The balance between expectations of an improvement and a deterioration is 10.1 percentage points, compared with 11.6 in September. The likelihood of an improvement in the scenario in the next three months was expressed by 12.6 per cent of construction firms, compared with 14.2 in the previous survey.
Assessments of demand for the firms’ own services remained stable (64.2 per cent), with the balance between firms reporting an improvement and those reporting a deterioration nearing zero (up from -1.5 percentage points in September) reflecting the strong increase among firms which are the most active in the residential segment (24.5 percentage points, up from 5.2 in September). The positive balance on short-term demand expectations increased by one percentage point compared with September, from 9.9 percentage points to 10.9.
The balance of firms' assessments regarding the economic conditions in which they were operating for the next three months entered positive territory for the first time since 2012, the year the survey was expanded to include the construction sector, rising from -2.5 percentage points in September to the current 7.2 percentage points. The uncertainty generated by economic and political factors would appear to continue to hamper these firms’ business. Positive stimuli are thought to come mainly from an increased demand for these firms’ services (both new and pre-existing orders), an easing in credit conditions and also from the fall in oil prices.
Expectations for three years ahead improved, with the balance between firms expecting better conditions and those expecting worse conditions standing at 52.7 percentage points, up from 49.4 in September.
Firms' views concerning investment conditions are favourable. The balance between those indicating an increase, rather than a decrease, in nominal expenditure on fixed investment in the first half of 2016 returned to positive territory at 9.8 percentage points compared with -6.7 in September. The outlook for 2016 also appears favourable, marking an improvement compared with 2015, with the balance rising to 9.0 percentage points, up from -6.5 in September, mainly reflecting the increase recorded for firms focusing on residential housing. In the last quarter the share of assessments of a deterioration shrank to 6.7 percentage points (down from 8.5 points in September), and the overwhelming majority of opinions reported stability (82.2 percentage points, up from 76.6 in September).
About half of the respondent firms declared that they expected the investment incentive on capital goods (the "maxi-amortization") to have a positive impact on their investment expenditure, with some 9 per cent of firms judging it would have‘no impact’ or "little impact".
The share of construction firms stating that in the previous months they had overcome the most difficult phase of the downturn increased to 38.5 per cent (from 36 per cent in December), while the percentage expecting a substantial increase in output in the coming months rose to 49.7 per cent, up from 45.0 per cent in September).
Pessimism over employment conditions in the following months subsided. The negative balance between expectations of an improvement and a deterioration narrowed to -15.6 per cent, down from -17.5 in September. Firms’ assessments regarding access to credit remained stable, while expectations concerning their liquidity position over the next three months improved slightly.
