Italian companies less willing to invest

Italian businesses expect a decrease in export and employment and an upturn of the domestic demand. Optimism in Italy falls 6 percentage points with respect to the previous quarter, but less than in UK, Spain (both down 19pp) and France (-18pp).

New research from Grant Thornton’s International Business Report – a quarterly global survey of 2,600 business executives in 37 economies – reveals a decrease in the optimism of Italian companies for the next 12 months.

In Q3 2016 only net 26% of Italian businesses were optimistic about the future, a drop from 32% in Q2 and 50% in Q1 2016. What happened meanwhile?

“Political uncertainty in various European countries as a result of Brexit, as well as of local issues such as the constitutional referendum in Italy – declared Stefano Salvadeo, CEO of Grant Thornton Financial Advisory Services – lead businesses to adopt a more prudential attitude. We could say that, generally speaking, businesses do not like uncertainty. This leads them to reconsider their investment strategies, although this does not necessarily mean an actual decrease in revenues. In short, businesses react to macroeconomic uncertainty by delaying their investment plans and stopping new hirings.”

On a global level, optimism dropped in many countries with respect to the previous quarter: -24 points in Ireland, -19pp in UK and Spain, -18pp in France, -6pp in Italy. In the US optimism dropped by 1pp, contributing to a significant 11pp fall over the year. Globally, business optimism stands at net 33%, falling 11pp over the year.

A downturn in confidence in the UK closely mirrors the unfolding of Brexit. Before the turn of the year, optimism was riding high at 74% but then it fell away sharply to 40% reaching its lowest levels since the start of 2013 with news of the result.

As far as the results recorded in Q3 in Italy are concerned, the data on export is what strikes most: only 12% of Italian businesses expect an increase in exports in the next 12 months, down from 24% in Q1 and 18% in Q2. The lowest export expectations (2%) were recorded in Q2 2013.

Employment expectations are also falling: only 14% of Italian businesses anticipate new hirings, against 30% in Q2. The highest confidence levels (36%) were recorded in Q4 2015.

As for investments, 38% of Italian businesses expect to invest in new plants and machinery, against 50% of the previous quarter; R&D investment expectations also slowed down from 48% in Q2 to 38%, though the lowest result was recorded in Q1 (32%).

“Which growth initiative is your business most likely to implement during the next 12 months?” was one of the questions asked in the survey. These are the results recorded in Italy:

• Increase investment in marketing 50%
• Expand your business domestically 46%
• Recruit specialist talent 34%
• Develop and/or launch a new product or service 34%
• Expand your business overseas 32%
• Improve salesforce effectiveness 22%
• Incentivise productivity improvements 22%
• Access new sources of funding 12%
• Merge with or acquire another business 4%

“Considering the growth strategies of Italian businesses” – commented Maurizio Finicelli, President of Ria Grant Thornton – it is worth noting that one in two business leaders is willing to invest in marketing and domestic expansion initiatives. A key factor for a third of the businesses is the recruitment of specialist talent, while expansion plans seem to be focused on organic growth rather than on M&A operations (only 4%).

The tragic events which affected Central Italy will most probably have a negative impact on business expectations and optimism in the short term. The prompt and effective response by the government, local institutions and mayors, the courage shown by the people affected by the earthquake, as well as the generous reaction of the civil society and of local and national business network are inspiring examples to be proud of”.

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