Easier said than done: the divergence between soft and hard data

Between the first half of 2013 and the summer of 2014, survey data pointed to a gradual recovery of economic activity, while the hard data continued to show persistent weakness. After providing statistical evidence to support the hypothesis that, during the sovereign debt crisis, the relationship between soft and hard variables for the Italian economy has weakened, the paper evaluates some possible explanations for this gap. The micro data for the quarterly survey conducted by the Bank of Italy – Il Sole 24 Ore on growth and inflation expectations tend to rule out the hypothesis that the gap between the qualitative and quantitative indicators comes from selection effects due to the progressive exclusion from the sample of economically distressed firms. Furthermore, the prolonged recession seems to have modified firms’ expectations, leading to a downward revision of production plans and the setting of a “new normal” situation. Therefore, firms may still have expressed favorable expectations for the economic outlook in spite of cyclically slack activity.