Between 20 September and 12 October 2006 the Bank of Italy’s branches conducted the 14th business outlook survey, interviewing 4,452 firms with 20 or more employees, 3,261 of which were non-construction industrial firms and 1,191 service firms.
In 2006, for the first time in the last five years, firms that expected their spending on fixed investment to exceed the amount initially planned outnumbered those expecting the opposite, representing respectively 21 and 16 per cent of the total. This situation, which was more marked in the North of the country, was common to both industry and services and was caused by upward adjustments on the part of firms with fewer than 200 employees. Downward adjustments, on the other hand, predominat ed among large firms and may have been due to particularly optimistic original plans. In 2007 just over a quarter of firms expect to increase their nominal spending on fixed investment and 19 per cent to reduce it. The projection becomes more optimistic if the answers are weighted to take account of firm size in terms of workforce, with the largest firms showing the brightest prospects.
Some 53 per cent of firms will finance fixed investment in 2007 from cash flow, compared with 55 per cent in 2006, and about 26 per cent – the same as in the previous year – expect to increase their borrowing. In six months’ time, 19 per cent of firms will have increased their exposure to banks, against 17 per cent in 2005, and fewer firms – 27 compared with 29 per cent – will report a reduction.
Demand and production
Around 54 per cent of firms recorded an increase in nominal turnover between January and September, and 18 per cent, a decrease. The findings differ little even if turnover from exports alone is considered. In industry, results were particularly good for firms with 200 or more employees and for chemical and engineering firms, while textile and clothing industries, although not quite as successful, showed a decided improvement on 2005. In the service sector, turnover was above average in trade, transport and communication.
Some 43 per cent of firms reported an increase in orders and sales between June and September and only 15 per cent, a decrease; the results were equally positive for industry and services. Among the individual branches of activity, the best performance was recorded by engineering and chemical firms, although signals were also positive in the more traditional industries. Two-thirds of the firms that reported an increase in demand between June and September expect a further increase in the next six months. The firms that reported a fall in orders are fairly evenly divided between optimists and pessimists.
Industrial production is expected to increase in the last quarter of 2006 compared with the previous period according to around 46 per cent of firms and to decrease according to just 10 per cent, compared with 37 and 16 per cent respectively in the previous year. Short-term demand expectations for demand continue to be closely correlated to those regarding production: around three-quarters of the industrial firms that expect to increase production in the current quarter also predict a rise in orders in the next six months. Almost two-thirds of the firms that forecast an increase in production expect it to rise further in the first three months of 2007. Although expectations of an upturn are spread fairly evenly among the various size classes, they are more frequent among firms exporting over a third of turnover, those producing traditional Italian goods, and engineering industries.
Workforce and labour contracts
The number of employees is expected to increase in 2006 compared with the previous year, both in industry and, more sharply, in services. In both sectors there are signals that the skilled workforce is below the desired level. A gap was reported by 16 per cent of industrial firms and 9 per cent of service firms and is attributed mainly to a lack of supply, the cost of manpower not being perceived as a particularly significant obstacle.
During 2006, 45 per cent of employees in industry (in 37 per cent of firms) obtained pay rises in addition to those established by national contract, and 40 per cent of employees in services (33 per cent of firms). Only a quarter or so of the workers concerned obtained more than 2 per cent, giving an average increase in the wage bill of about 0.6 per cent.
Some 73 per cent of firms expect to close the current year with an after-tax profit, compared with 67 per cent in the 2005 survey, while 12 per cent predict a loss. Just under a third of firms also believe that per capita gross profit margins on the domestic market will be narrower than in 2005; about a fifth predict an increase. About a half of exporting firms report stable profit margins on export markets, both EU and non-EU, while according to the other half indications point to a decline rather than an increase. Overall, however, results show an improvement on the previous year.
Assessment of the present economic situation
According to 36 per cent of firms, market conditions have picked up in the last six months, against 9 per cent that report a recession. The majority of firms (55 per cent) still regard the recent cyclical phase as one of stagnation, but 28 per cent of them expect an expansion in the next six months and only 3 per cent, a recession. Moreover, while 86 per cent of the firms reporting an expansion in the last six months expect it to continue, 43 per cent of those that experienced a recession predict that will be prolonged. Assessments and expectations are both strongly positive among chemical and engineering firms; textile industries, hotels and restaurants expect a sharp improvement with respect to their moderately positive assessments of the current situation.