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Several multinationals are cutting costs or cutting jobs, while others are shelving projects as inflation rises and confidence in the global economy fades.
At a forum of central bankers in Sintra, Portugal, one of the conclusions of the president of the United States Federal Reserve (Fed) was that the best way to attack the excessive increase in world prices is by slowing down economic growth.
Electric car brand Tesla, drugmaker Novartis, retailer Bed, ‘Bath and Beyond’, and battery maker LG Energy are examples that such a slowdown is already happening around the world and that the specter of recession increasingly threatens the global economy.
US housewares retailer Bed, ‘Bath and Beyond’ announced that its first-quarter sales fell 25% and consequently it will reduce its capital expenditures by the same proportion. Nor is it going to remodel or build new stores.
“There was a sharp shift in customer sentiment in the quarter and since then the pressures have intensified,” Sue Gove, the company’s interim CEO, said in a statement.
For its part, South Korean battery maker LG energy, a major supplier to auto companies, is thinking twice before investing $1.3 billion in a factory in Arizona, United States; a plan he unveiled just three months ago. The reason he cited was that they were going through “unprecedented” economic conditions.
Tesla, whose chairman Elon Musk anticipated weeks earlier that he had “very bad” sentiment about the economy, has closed an office in California and laid off about 200 workers. The considered richest man in the world has said that he needs to reduce staff by about 10%.
And, in a similar case, Swiss drugmaker Novartis unveiled a restructuring program that includes cutting 8,000 jobs, or about 7.4% of its global workforce.
High prices are the common denominator
Companies are finding it increasingly difficult to pass on rising costs of raw materials and labor to customers as inflation remains stubbornly at the highest level in decades.
“Most companies have to swallow a lot of these price increases, and that means cutting elsewhere,” Stuart Cole, chief macroeconomist at Equiti Capital, told Reuters.
The CEO of General Mills, which makes America’s famous Cheerios cereal, acknowledged to investors on Wednesday that rising prices have led more consumers to forgo restaurants and eat at home.
“As consumers become more concerned with economic realities, the first thing they tend to do is eat more at home,” said Jeff Harmening.
Those of Tesla, Novartis, Bed, ‘Bath and Beyond’ and LG are just examples of what is happening globally in an uncertain economic environment that forces companies to take early action to help them weather a possible recession.
with Reuters
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