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Businesses cut spending and jobs as outlook becomes less certain

By Medha Singh

(Reuters) – Executives at electric car marker Tesla, drugmaker Novartis and retailer Bed Bath and Beyond are cutting spending or jobs while others put projects or deals on hold as inflation rages and that confidence in the global economy is declining.

Manufacturing growth is slowing around the world as China’s COVID-19 curbs and Russia’s invasion of Ukraine disrupt supply chains and keep inflation at its highest in years, while the Growing risk of a US recession poses a new threat to the global economy.[nL1N2YA111}[nL1N2YA111}[nL1N2YA111}[nL1N2YA111}

More companies are now taking early action to help weather any downturn, a glimpse that more drastic cuts could be looming when earnings reports roll in next month.

“The main concern for businesses right now is how much the economy will slow down and can we avoid a recession,” said Art Hogan, chief market strategist at National Securities in New York.

“Markets have been held hostage by fears of a Fed-led, inflation-fighting recession. Those concerns have been front and center for most of the year.”

‘ACUTE CHANGE’

U.S. home goods retailer Bed, Bath and Beyond Inc said on Wednesday its first-quarter sales fell 25%.

“During the quarter, there was a sharp shift in customer sentiment and since then the pressures have intensified significantly,” Sue Gove, the company’s interim chief executive, said in a statement. “That includes high inflation and fluctuations in buying habits.”

In response, the retailer said it was cutting capital spending by around 25% and putting plans to renovate and build new stores on hold.

Others abandon expansion plans or cut jobs.

South Korean battery maker LG Energy Solution Ltd, a major supplier to U.S. automakers including Tesla Inc, is reassessing a $1.3 billion investment in an Arizona plant citing economic conditions” unprecedented”, a plan that was unveiled only three months ago.

Tesla, whose CEO Elon Musk previously said he had “really bad” feelings about the economy, closed an office in California and laid off about 200 workers. Musk said the company needed to cut its workforce by about 10%.

Swiss drugmaker Novartis said on Tuesday that a previously announced restructuring program could cut 8,000 jobs, or about 7.4% of its global workforce, as it streamlines its oncology and non-oncology businesses.

More companies are also finding it increasingly difficult to pass on rising raw material and labor costs to customers, as inflation stubbornly holds at its highest level. for decades.

“For the majority of companies, they have to swallow a lot of these price increases themselves, which means cutting elsewhere,” said Stuart Cole, chief macroeconomist at Equiti Capital.

By contrast, the CEO of Cheerios maker General Mills told investors on Wednesday that higher prices are prompting more consumers to forgo restaurants and eat at home.

“As consumers become increasingly concerned about economic reality, the first thing they tend to do is eat more at home,” said chief executive Jeff Harmening.

OFFERS ON ICE

Market uncertainty has also left an increasing number of pending transactions.

Walgreens Boots Alliance on Tuesday shelved plans to sell its UK pharmacy chain, blaming global financial market conditions which meant potential buyers were struggling to borrow enough money.

“Mergers and acquisitions events tend to take place in stable or rising markets, so volatility like the one we’ve seen so far this year can negatively affect these activities,” said Morningstar analyst Julie Utterback.

Shares of Europe’s largest online meal ordering company, Just Eat Takeaway.com, hit an all-time low on Wednesday as the loss-making firm reportedly successfully sells its Grubhub operation in the United States and it would be able to achieve profitability without additional funding.

The sale was followed by an analysts’ note from Berenberg initiating coverage with a “Sell” rating. Analysts have questioned whether the company would be able to get rid of Grubhub for anything resembling the $5.8 billion it paid in an all-stock acquisition that closed in June 2021.

(Additional reporting by Amal S in Bengaluru; Writing by Anna Driver; Editing by Nick Zieminski)

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