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Firms cut back spending amid sombre climate

Pessimism about Brazil that has wiped out $260 billion (R2.8 trillion) in stock market value in the past year is spreading as companies from cellular network operator Oi to aircraft maker Embraer cut back on spending.

About 25 percent of Brazilian businesses expect domestic demand to have a negative impact on investment plans this year, up from 13 percent at the beginning of last year, according to estimates from Getúlio Vargas Foundation, a Rio de Janeiro university and research facility. Those that see demand pushing up spending fell to 47 percent from 67 percent.

Oi and retailer Hering both said they were preparing for a challenging year ahead in their latest earnings statements as Brazil’s economy was forecast to grow at the slowest pace among the biggest emerging markets and Standard & Poor’s downgraded its sovereign rating to BBB-, its lowest investment-grade rating.

The 25 percent drop in the benchmark Bovespa index in the past 12 months is the biggest among the largest equity markets in dollar terms, and Schroder Investment Management has said the rout would get worse.

Of the 722 businesses polled by the Getúlio Vargas Foundation, 16 percent plan to invest less in the next 12 months, while 34 percent will spend more, according to the report released last week. – Bloomberg

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