Work orders to the garment sector in Bangladesh dropped by more than 20 percent during the September and November season as a result of consumers in the western world tightening their belts in response to soaring inflation and increasing unpredictability brought on by the conflict between Russia and Ukraine. The likelihood that the United States and the European Union, Bangladesh’s two most important export markets, will enter recession is growing, which is another indicator that the outlook is not favorable for the sector that brings in the most foreign currency for the country. According to Faruque Hassan, president of the Bangladesh Garment Manufacturers and Exporters Association, “international clothing retailers and brands have cut the work orders by 20 per cent for the September to November season compared to the March to June season.” This information was provided in reference to the period of time spanning from September to November.
According to Kutubuddin Ahmed, chairman of Envoy Textiles, which is one of the leading garment exporters in Bangladesh, stores of major retailers and brands have a significant quantity of inventory that has not been sold. Because of this, they are either refraining from placing any new orders, demanding that payments be postponed, or requesting that suppliers halt shipments. A healthy rate of recovery from the slowdown caused by the coronavirus was being made by the industry prior to the drop in orders that occurred during this time. As the world began to recover from the health crisis, retailers and brands had already placed an abnormally high work order in an effort to meet the surge in demand. Since September of the previous year, Bangladesh had been reporting increased exports, and this trend continued until April of this year. According to Ahmed, who in the previous fiscal year exported high-end denim garments worth a total of $110 million to Europe and the United States, the momentum did not continue in May as a direct result of the fallout from the war. As a result of the fallout of the conflict, the amount that Bangladesh earned from the shipment of garments decreased to $3.16 billion in May from $3.93 billion in April.
The effects of the declining number of work orders might be felt in the following fiscal year as well, which begins on July 1 of this year. According to Md Fazlul Hoque, managing director of Plummy Fashions Ltd, one of the greenest factories in Bangladesh, “If the war does not stop, the shipment may worsen because the decline in order will not be limited to 20 per cent,”
As a result of rising global commodity prices, a lack of available energy, and supply bottlenecks, inflationary pressure is being felt all over the world, not just in the United States and the European Union (EU). Yesterday, the President of the World Bank Group, David Malpass, stated that it could take as long as two years to bring prices back under control, given that the United States and other economies are experiencing levels of inflation not seen in decades.
Researchers working for the International Monetary Fund made an earlier prediction that is very similar to this one.
According to Hassan, the situation is getting worse for small and medium-sized garment units as a result of a decline in the number of orders placed, and many of these businesses are not receiving subcontracting work from the larger local garment units either.
In addition to this, the head of the BGMEA thinks the war has had a negative impact on the global economy and has contributed to an increase in inflation. As a result, consumers have been forced to adjust their consumption patterns because higher prices have a negative impact on their earnings. For instance, consumers have been forced to reduce the amount of money they spend on clothing items in order to free up money for the purchase of fuel and food, both of which have become more expensive.
The cost of a gallon of gas has increased by a factor of three in both the US and the EU.
The Food Commodity Price Index compiled by the World Bank has increased by 15% over the previous two months and is more than 80% higher than it was just two years ago. This index recently reached a record high in nominal terms during the March-April period of 2022. Hassan noted that the rising costs of electricity and food have had an impact on garment-producing countries like Bangladesh.
According to A Matin Chowdhury, general director of Malek Spinning Mills Ltd., foreign retailers and brands have placed their orders on hold or suspended them. The Bangladesh Knitwear Manufacturers and Exporters Association’s executive president, Mohammad Hatem, noted that the number of work orders is decreasing due to the accumulation of outdated stock. It is possible that exporters may still face difficulties, as the argument for a global recession continues to grow. According to Goldman Sachs, a global investment bank and financial services provider, the US economy is now expected to enter recession in the next year by 30%, up from 15% previously.
Reuters says that Morgan Stanley, an American multinational investment management and financial services company, thinks the chances of a recession in the US in the next 12 months are about 35%. Citigroup says that the chance of a global recession is close to 50%.
In a Senate hearing on Wednesday, the head of the US Federal Reserve, Jerome Powell, said that a recession is possible because the Fed keeps raising interest rates. As the chance of a recession grows, more and more people will choose to cut back on their spending to stay afloat. This is bad news for Bangladesh’s garment exporters.
Reference:
Mirdha, Refayet Ullah. “Garment Export Order Falls 20pc as Inflation, War Bite.” The Daily Star, 28 June 2022, https://www.thedailystar.net/business/economy/news/garment-export-order-falls-20pc-inflation-war-bite-3058271.
Image Courtesy:
- https://www.aljazeera.com/news/2021/8/26/bangladesh-garment-workers-retailers-safety-pact
- https://www.npr.org/2020/06/05/869486297/for-bangladeshs-struggling-garment-workers-hunger-is-a-bigger-worry-than-pandemi
