The European Union (EU) and the USA are the two principal apparel export destinations for Bangladesh, holding the first and second positions, respectively, in terms of the volume of apparel shipments made by the latter.
Any changes in dynamics therein are but loaded with ramifications, and rather far reaching for that matter!
As it would have been, both these markets are under major inflationary pressure.
The US inflation accelerated to a 40-year high in May this year while Euro zone inflation hit a record 8.1 per cent in May even as the annual inflation in the 19 countries that use the euro currency soared past the previous record of 7.4 per cent reached in March and April, as per Eurostat.
And there’s seems to be little respite from the four-decade high inflation until energy and food costs simmer down and excess demand pressures abate.
At first, it appears Bangladesh managed to have escaped the implications after it registered a near 50 per cent growth in the first 27 days of June – amounting to US $ 3.52 billion – compared to last year, shrugging off the 40-year high record inflation in its major export strongholds.
However, digging a little deeper, emerge facts that call for some serious soul searching.
Notwithstanding the 50 per cent growth, the current status of work orders does not look very inspiring as consumers in the Western world tighten their belts in face of the blistering inflation.
“Global brands and retailers have cut the work orders by 20 per cent for the September to November season compared to the March to June season,” claimed Faruque Hassan, President of Bangladesh’s apex garment makers’ body, the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).
Since September last year, Bangladesh had posted higher exports, which continued until April before the brakes were applied in May when garment shipments fell to US $ 3.16 billion from that of US $ 3.93 billion in April.
The stores of major retailers and brands have large volume of unsold inventory, prompting them to either not place new orders or demand deferral payments even if many have urged their suppliers to put shipments on hold, claimed industry insiders, whose views hold water in light of the recent reports in this regard.
Global biggies, including the likes of Target and Walmart, have already started to reduce prices on some items to right-size their inventories. If Walmart, for instance, began ‘being aggressive with rollbacks’ in apparel, whose margin can still be helpful even with reduced prices, Target has initiated a similar move to avoid carrying out-of-season items to keep its assortment fresh.
These are not the only retailers that struggled to have the right inventory in place. Burlington executives have underlined during the off-pricer chain’s earnings call that they had deliberately reduced inventory levels with the goal of driving fewer markdowns.
Consumers have been compelled to cut back their budget on clothing items in order to free up money to purchase costlier fuel and food, underlined economists; and this coming at a time when the apparel sector of Bangladesh has been recovering from the pandemic-induced slowdown, and at a rather healthy pace, has got the industry concerned.
As soon as the world recovered from the health crisis, retailers and brands placed abnormally high work orders to meet the surge in demand, claimed an apparel maker to Apparel Resources (AR) who put the blame for the current slowdown squarely on inflation amidst reports of US Government raising the bank interest rates to stem rising inflation.
This has reduced the people’s purchasing power further.
The situation for small and medium-sized garment units is worse as owing to decreasing orders, many are not even receiving subcontracts from the bigger players, further claimed the BGMEA chair.
For Bangladesh, the worrying part is, the inflation-induced challenges are here to stay for a while at least since the case for a global recession is only gathering pace lately which led the World Bank Group President David Malpass to claim it might take even two years to get prices back under control, also reflected in the predictions made by the International Monetary Fund earlier in this regard.
Meanwhile, Goldman Sachs, the American multinational investment bank and financial services company, has forecast a 30 per cent chance of the US economy tipping into recession over the next year, up from 15 per cent earlier while Morgan Stanley, another American multinational investment management and financial services firm, placed the US recession odds for the next 12 months at around 35 per cent.
Citigroup forecasts a near 50 per cent probability of global recession!
As the possibility of a global recession becomes strong, more and more people will choose to cut back on their consumption to keep their head above the water, bringing more bad news for Bangladesh’s garment exporters, said many industry insiders.
Apparel exports might take a hit, agreed Ashikur Rahman Tuhin, Managing Director of TAD Group and a former Director of BGMEA, pinning hope that though things might change for better in the coming Christmas and holiday season, to wind up on a positive note.
