Morale Among Italian Businesses Lowest in 3 Years

July 09, 2012 /

The latest Business Outlook survey conducted by Markit shows that confidence among Italian businesses has dropped since the start of the year, and is only slightly higher than at the height of the global financial crisis. Respondents highlighted concerns over the impact of greater fiscal pressures and a lack of credit availability on prospects for growth in output and investment in the year ahead, and have signalled their intentions to reduce staffing levels further.

Business sentiment falls to post-financial crisis low

Expectations regarding growth in activity over the forthcoming 12 months across Italy’s private sector economy are lower than at any point in the past three years. Both the manufacturing and service sectors have a net balance of +15 percent of firms forecasting a rise in output levels, which in each case is notably lower than those registered in the previous survey (both +23 percent).

A similar trend can be seen in the latest predictions for incoming new business. Confidence in a rise in
new orders within the goods producing sector is the lowest since data were first collected at the start of
2006, with optimism among service providers only slightly higher in comparison after falling for the fifth
straight survey. Accordingly, expectations in relation to business revenues are subdued by historical standards.

Job cuts planned for coming year

Italian businesses are generally set to reduce their employment levels over the next 12 months. The net balance of services firms expecting to cut staffing numbers (-9 percent) is the most negative in the series history, while the manufacturing equivalent (-15 percent) signals that staff shedding intentions are the most widespread in the sector since the start of 2009. On top of this, firms plan to cut investment in capital over the coming year.

Profits set to stagnate

Profit levels are on balance expected to remain broadly unchanged, which represents a negative development since February when the forecast was for modest growth. In part, this reflects a general belief that input costs will rise faster than charges.

One positive is that estimated rates of inflation of both input and output prices have fallen since the
last survey, though they are slightly stronger than their respective Eurozone averages.

Across Europe as a whole, sentiment has dropped markedly since February, with a notable slump in confidence in Germany and deteriorating outlooks in Spain and the UK. Companies expect weaker growth of activity, new business and revenues compared with the situation in February.

Employment is set to be largely stagnant, while minimal changes in investment are anticipated.

Drop in Italian confidence correspondents with overall worldwide trend

A fall in business confidence is apparent at the global level. Growth of activity is expected by +37 percent of private sector firms on balance, down from +44 percent in February. However, sentiment remains above that recorded in late-2011. US firms continue to be among the most positive in their growth expectations, although optimism has dipped since the previous outlook survey. Confidence across the BRIC economies is robust overall, although differences are evident at the national level, with Brazilian and Indian companies notably
more bullish than those in China and Russia.

Firms around the world report lower expectations regarding input cost inflation, following recent price
falls for many commodities. Output charges are set to rise at a weaker pace accordingly.

Phil Smith, Economist at survey compilers Markit: “These data clearly show that Italian businesses are anticipating a challenging set of conditions in the year ahead. Although firms generally expect both output and new orders to increase, the degree of confidence is at a post-financial crisis low amid concerns that access to credit will remain restricted and rising tax burdens will further squeeze company and household budgets alike. The labour market is set to feel the brunt of this drop in business sentiment, with firms looking to reduce staffing numbers as part of efforts to improve their productivity and competitiveness. Another area targeted for cost cutting is capital investment, which may have negative consequences for growth in the longer term.”

The Global Business Outlook Survey for worldwide manufacturing and services is produced by Markit Economics and is based on a survey of around 11,000 manufacturers and service providers that are asked to give their thoughts on future business conditions. The reports are produced on a tri-annual basis, with data collected in February, June and October. The latest survey was conducted between June 12 and 28.


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