Survey on Inflation and Growth Expectations - September 2016, No. 50Supplements to the Statistical Bullettin - Sample Surveys

The interviews for the Banca d’Italia–Il Sole 24 Ore quarterly survey on inflation and growth expectations were carried out between 31 August and 19 September 2016. A total of 1037 firms with 50 or more employees took part, of which 408 operate in industry excluding construction, 419 in services and 210 in construction.

The main findings for firms in services and in industry excluding construction

Inflation expectations in Italy and change in firms’ selling prices

Compared with the previous survey, consumer inflation expectations six months ahead were revised marginally upwards (from nil to 0.1 per cent); expectations one year ahead held stable (at 0.3 per cent), while those three to five years ahead were adjusted slightly downwards from 0.8 per cent to 0.7 per cent.

Firms reported a further decrease in their year-on-year selling prices (-0.2 per cent, down from -0.1 per cent in the June survey). The largest firms in the industrial sector, those with at least 1,000 employees, contributed the most to this decline.

List prices are expected to grow by 0.6 per cent over the next 12 months, 0.3 percentage points less than in the June projection. The downward revision was mostly related to the opinions of firms in industry excluding construction.

Competitors’ pricing policies remain the main factor holding back the expected increase in selling prices. Changes in the costs of raw materials, labour and intermediary goods all played an equal role in continuing to push selling prices up; the performance of demand had a barely positive effect.

Assessment of the general economic situation in Italy

The overwhelming majority (over 79.1 per cent) of the firms interviewed continued to see the general economic situation as stable. However, the balance of reports of improvement minus those of deterioration was negative (-5.8 percentage points) for the first time since the beginning of 2015 both in industry excluding construction and in services. The average probability assigned to an improvement of the economic situation in the next three months continued to decline (down to 14.2 per cent), confirming a trend under way since December 2015.

Demand

Firms’ views on changes in current demand, though still largely positive, worsened compared with the previous survey. The short-term outlook weakened as well: the balance of firms’ expectations of an increase minus those of a decrease in the demand for their products declined by almost 5 percentage points, to 11.8 points.

Assessments of current and expected foreign demand conditions showed a similar trend; they continued to be positive, but slightly less so than in the previous quarter. Almost two fifths of exporting firms reported that their foreign demand expectations were significantly influenced by geopolitical developments in the outlet markets. Just under 30 per cent of firms stated that these factors had become more significant since the beginning of 2015.

Assessment of business conditions

Firms’ expectations of the economic conditions in which they will be operating over the next three months are mostly stable (almost 80 per cent of firms), depicting a scenario similar to that for assessments on demand conditions. The balance of positive minus negative views, while narrowing, remained positive (1.7 percentage points, down from 4.9 in June). As in the previous survey, economic activity is primarily bolstered by changes in demand and, to a more modest extent, by improved credit access conditions and changes in own prices. The uncertainty attributable to economic and political factors continues to hinder an expansion in economic activity, while the effect of changes in the euro-dollar exchange rate and in oil prices remain neutral. Firms’ expectations three years ahead, instead, continue to be broadly positive.

Investment conditions

Assessments of investment conditions were stable for about four fifths of firms; the balance of expectations of an improvement minus those of a deterioration turned negative for the first time since the beginning of 2015, falling to -1.2 percentage points. The assessments of firms in the services sector and of smaller firms in general (those with fewer than 200 workers) influenced this outcome.

The share of firms expecting their nominal expenditure on fixed investment to grow in the second half of 2016 compared with the first is greater by 8.5 percentage points than that of firms projecting a decrease. The balance was especially favourable for the largest firms (those with at least 1,000 workers). For 2016 as a whole there was an 18 percentage point difference between expectations of an increase and those of a decrease in investment expenditure, which is near the average values of the two previous surveys conducted this year. For half of the firms, the average nominal investment expenditure for 2016 is expected to remain unchanged compared with 2015.

For the “super ammortamento”, the share of firms that considered it sufficient or very significant continued to rise to just under one fifth, although 82.3 per cent of firms continued to report that the incentive had no appreciable effect or was not significant for them.

Liquidity and access to credit

Most firms continue to perceive stable credit standards. The balance of firms reporting better conditions compared with the previous quarter minus those indicating greater difficulties decreased to 2.9 percentage points from 5.1 points, particularly owing to the worsening assessments of firms operating in services.

Some 25 per cent of firms deemed their liquidity position to be more than adequate for their needs, while 14 per cent considered it insufficient.

Employment

Short-term expectations for employment worsened after the pick-up recorded in June, returning to the levels of March 2016. The overall balance is moderately positive and reflects differing patterns: it is barely negative in industry excluding construction and for firms located in the Centre of the country.

Construction firms

In September the assessments of the large majority of construction firms regarding the general economic situation pointed to stability (almost 80 per cent of respondents); the balance of expectations of an improvement minus those of a worsening deteriorated further, returning to negative territory (-4.3 percentage points) for the first time since the beginning of 2015. The average probability assigned to an improved scenario in the next quarter is stable at 11.1 per cent.

A good 67.3 per cent of firms thought that demand for their own products would remain the same; the balance of firms reporting an improvement minus those reporting a deterioration became negative again (-5.1 percentage points) after the small pick-up recorded in June. Looking ahead, demand expectations for reporting firms’ own products in the next three months remain optimistic, albeit less so than in the previous quarter: the share of firms expecting an increase in demand was 7.8 percentage points higher than the share expecting a decrease, compared with 12.1 percentage points in June.

The balance of firms’ assessments of the economic conditions in which they will operate in the next three months remains negative owing to the assessments submitted by firms in the North of the country. The uncertainty attributable to economic and political factors continues to act as a brake, while positive stimuli originate from the performance of demand for firms’ services (connected to both new projects and to those already under way) and, to a lesser degree, the easing of credit standards and the dynamics of firms’ own prices.

As in industry, expectations for the economic conditions in which firms will be operating three years ahead remained overwhelmingly positive. Firms’ views on investment conditions remain favourable but are deteriorating compared with the previous survey: the positive balance of reports of an improvement with respect to the last quarter minus those of a worsening fell by more than 4 percentage points to 1.2 points. The drop was especially pronounced for firms in the North of Italy, for which the balance was negative. Almost 70 per cent of firms expect nominal expenditure on fixed investment in the second half of 2016 to hold stable compared with the first half. The balance of firms expecting an increase minus those expecting a decrease has nevertheless returned to negative territory for the first time since the fourth quarter of 2015. The balance was even more negative for firms active in residential construction. For 2016 as a whole the balance remains positive but has narrowed considerably compared with the June survey, dropping from 11.3 percentage points to 5.8 points.

Assessments of credit access conditions remain negative: the balance of firms expecting an easing of credit conditions minus those expecting a tightening stayed in negative territory at -7.5 percentage points, which was about the same level as in March. The share of firms that expected their liquidity position to be adequate or more than adequate over the next three months held stable at about 70 per cent.

Expectations of employment conditions in the coming months are more pessimistic than in the previous survey: the negative balance of expectations of an improvement minus those of a deterioration widened to -12.7 percentage points from -7.4 points in June.

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