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 March 2016. A total of 1000 firms with 50 or more employees took part, of which 376 operate in industry excluding construction, 415 in services and 209 in construction.
The main findings for firms in services and in industry excluding construction
Inflation expectations in Italy and change in firms’ selling prices
Consumer inflation expectations six months ahead and one year ahead were unchanged from the previous survey (at 0.5 and 0.5 per cent, respectively), as were expect ations between three and five years ahead (at 1.0 per cent); only expectations two years ahead were revised up slightly to 0.8 per cent, from 0.7 per cent in December.
Firms reported a 0.5 per cent decline in their selling prices compared with a year earlier (-0.3 per cent in December), owing above all to trends at the largest firms (1,000 or more employees) and at those belonging to the industrial sector. Selling prices are expected to grow a little in the next twelve months (0.4 per cent), both in industry excluding construction and in services.
The expected increase is mostly attributable to rising labour costs and, to a lesser extent, indications of a pick-up in demand, while competitors’ pricing policies are instead holding selling prices down.
Assessment of the general economic situation
The overwhelming majority (over 70 per cent) of the firms interviewed expected the general economic situation to remain stable. However, the balance between reports of improvement and deterioration, while still positive, narrowed to 5.5 percentage points from 12.5 points in the previous quarter. The average probability assigned to an improvement of the economic situation in the next three months continued to decline, reaching 15.6 per cent (compared with 17.5 per cent in the previous quarter).
Demand
Firms’ views on changes in current demand, though they have been on a downward trend since June 2015, nonetheless remain positive: the balance between those that expect an increase and those that expect a decrease came to 5.4 percentage points (from 6.2 percentage points in December). The balance of firms’ expectations of an increase or decrease in demand for their products instead improved markedly (25.3 percentage points, from 14.0 points in December), both for firms in industry excluding construction and in services.
Assessments of current conditions in foreign demand also continue to be favourable, recording a slight improvement with respect to December. Even more positive indications come from firms' expectations over the next three months; in both cases the increase compared to the last quarter is attributable to the services sector.
Assessment of business conditions
Firms’ expectations of the economic conditions in which they will be operating over the next three months have improved slightly. The balance between positive and negative views is 8.5 percentage points (from 3.9 points in December), though by far the largest share of responses pointed to stable conditions (78.1 per cent). The balance increased in industry excluding construction and in services. Firms’ activities continue to be bolstered by low oil prices and above all by trends in demand, as well as by more favourable credit conditions; with respect to December's survey, the uncertainty attributable to economic and political factors continues, while the positive effect of exchange rate dynamics has waned.
Investment conditions
A major ity of firms (77.9 per cent of those interviewed) are of the opinion that investment conditions will remain stable. The balance between expectations of an improvement and a deterioration is 8.8 percentage points, up slightly from December’s survey.
The share of firms expecting an increase in nominal expenditure on fixed investment in the first six months of 2016 is now 7.7 percentage points greater than those expecting a decrease (14.5 percentage points in December). Expectations are particularly favourable among medium-large firms (200 to 999 employees) and those operating in the South and Islands; about half of the firms expect nominal expenditure on fixed investment to remain unchanged compared with the second half of 2015.
For 2016 as a whole the balance between firms forecasting an increase in investment expenditure and those forecasting a decrease is slightly greater than that of the previous survey (18.7 percentage points compared with 16.8 points in 2015). It was especially favourable for the most export-oriented firms (32.8 per cent). Some 48.3 per cent of firms forecast that investment expenditure will hold constant compared to 2015, barely above the share recorded in the previous survey.
Firms were once again asked whether the investment incentive on capital goods ("super ammortamento") contained in the 2016 Stability Law had influenced their investment plans. A little over half of the firms reported that it had had an appreciable effect but of these only one fifth believed it to be sufficient or very significant.
The share of firms reporting a positive impact of the investment incentive is higher in industry excluding construction, especially among large firms (1,000 or more workers).
Some 43.5 per cent of the respondents declared they had passed the most difficult stage of the economic downturn, slightly lower than the 47.6 per cent share recorded previously; the percentage of firms predicting a solid improvement in their production rates in the coming months rose to 46.6 per cent, from 44.1 per cent in December.
Liquidity and access to credit
he conditions of access to credit have eased further, continuing a trend under way since the end of 2012. In the last quarter the balance between firms reporting better conditions compared with the previous quarter and those indicating greater difficulties remained basically unchanged at 3.7 percentage points. The share of firms reporting an improvement in access to credit came to 11.5 per cent (9.9 per cent in December); conditions improved both for industrial firms and for those operating in the services sector.
The share of firms expecting their liquidity position to be insufficient fell to 13.3 per cent from 16.6 per cent, while those who considered it more than adequate rose to 22.3 per cent (from 17.6 per cent).
Employment
Expectations for employment in the short term improved. The share of firms estimating an increase in staff numbers in the next three months is now greater than that of firms expecting a decline (4.8 percentage points; from -0.9 percentage points in December; Table 19), while the share of those expecting it to remain basically unchanged rose to 74.8 percentage points from 66.3 points in December. The balance rose above all owing to the increase recorded among firms operating in the Centre and among medium-sized firms.
Construction firms
he optimistic views of construction firms concerning the general economic outlook were confirmed in March, although the y darkened slightly compared with the previous survey. The balance between expectations of an improvement and a deterioration is 5.4 percentage points, compared with 10.1 points in December (Table 4). The probability assigned to an improvement in the scenario in the next three months is stable overall at 12.5 per cent.
Assessments of growth in demand for the reporting firms’ own products mostly pointed towards it remaining stable, at 64.9 per cent, with the balance between firms reporting an improvement and those reporting a deterioration negative by 3.3 percentage points (from 0.0 points in December). The negative balance reflected the worsening of assessments by the firms which are most active in the residential segment (-4.6 percentage points, from 12.6 points in December). For the firms most heavily involved in residential construction, the likelihood of there being a positive scenario in the next three months has risen to 12.5 per cent (from 10.9 per cent in December).
The balance of firms' assessments of the economic conditions in which they will operate for the next three months turned slightly negative (-1.9 per cent), after entering positive territory three months ago for the first time since December 2012. Uncertainty generated by economic and political factors appears to be hindering an improvement while positive stimuli are instead expected to come from increased demand for the firms’ own products (both new and pre-existing orders) and an easing of the terms of access to credit.
Expectations three years ahead remained positive and basically stable compared to the last survey: the balance between firms expecting better conditions and those instead expecting a deterioration came to 48.1 percentage points (from 52.7 points in December).
Firms' views on investment conditions remain favourable: the balance between those indicating an improvement and those instead expecting a deterioration with respect to the last quarter remains positive at 3.4 percentage points. The balance between firms indicating an increase in nominal expenditure on fixed investment in the first half of 2016 compared to the previous period, and those expecting a decrease, remained basically unchanged at 9.7 percentag e points. The trend is also positive for 2016 overall compared with 2015, with the balance showing a considerable increase, at 18.6 percentage points (9 points in December).
The share of firms reporting that in the previous months they had overcome the most difficult phase of the economic downturn is basically stable at 38.1 per cent. The percentage expecting a "substantial increase" in output in the months to come fell to 45.1 per cent (from 49.7 per cent in December).
Pessimism over employment conditions has subsided somewhat compared to the last survey. The negative balance between expectations of an improvement and a deterioration has narrowed and is now at -9.1 per cent, from -15.6 per cent in December. Assessments on the conditions of access to credit are improving: the balance between firms reporting an easing of credit conditions compared with those reporting a tightening rose to -7.6 per cent, from -10.2 per cent in December. Expectations concerning firms’ liquidity position over the next three months also improved slightly.
