Bangladesh likely to feel the pinch eventually
Asia’s factory output weakened in October as global recession fears and China’s zero-Covid policy hurt demand, business surveys showed on Tuesday, adding to persistent supply disruptions and darkening recovery prospects.
Global factory output also weakened in October as inflation soared globally as supply chains still healing from the coronavirus pandemic were hit again by Russia’s invasion of Ukraine, forcing consumers to rein in purchases, reports Reuters.
This has predictably affected Bangladesh’s readymade garment (RMG) industry, as insiders are wary about the upcoming months, even fearing that Christmas sales may not boost their output, thanks to dwindling work orders.
Further US interest rate hikes are also expected to force most Asian central banks to prevent sharp capital outflows by tightening their own monetary policies, even if it means cooling already soft economies, analysts say.
Manufacturing activity shrank in South Korea, Taiwan and Malaysia in October, and expanded at the slowest pace in 21 months in Japan, highlighting the pain from slowing Chinese demand and stubbornly high import costs.
China’s Caixin/S&P Global manufacturing purchasing managers’ index (PMI) stood at 49.2 in October, up from 48.1 in September but remaining below the 50-point mark that separates growth from contraction.
The private sector survey was in line with an official PMI survey released on Monday that showed China’s factory activity unexpectedly fell in October.
“Asia is extremely reliant on China. Its zero-Covid policy continues to disrupt supply chains and keep Chinese travelers from returning to Asian tourist destinations. It’s also hurting the region’s exports,” said Toru Nishihama, chief economist at Dai-ichi Life Research Institute in Tokyo.
“Another big risk is the pace of US rate increases. If the Federal Reserve continues to hike rates steadily, that could ignite capital outflows from Asia and hurt exports.”
Japan’s au Jibun Bank Japan Manufacturing PMI fell to 50.7 in October from September’s 50.8 final, marking the weakest growth since January last year.
South Korea’s factory activity shrank for a fourth straight month in October as orders for exports fell for an eighth month, the PMI showed.
That followed data that showed South Korea’s exports fell the most in 26 months with shipments to China, its largest market, extending declines.
Taiwan’s PMI slid to 41.5 in October from 42.2 in September, while that for Malaysia fell to 48.7 from 49.1, surveys showed.
Factory activity in Indonesia expanded at a slower pace in October with the PMI standing at 51.8, down from 53.7 in September.
India was an outlier with factory activity expanding at a stronger pace in October as demand remained solid.
The International Monetary Fund cut Asia’s economic forecasts as global monetary tightening, rising inflation blamed on the war in Ukraine, and China’s sharp slowdown dampened the region’s recovery prospects.
The fallout from China’s strict Covid-19 curbs continues to broaden. This week, restrictions forced the temporary closure of Disney’s Shanghai resort and hit production of Apple Inc iPhones at a major contract manufacturing facility.
Bangladesh’s economy to suffer
The readymade garment (RMG) export of the country is set to post further negative growth in October like the previous month September, as demand declines in the West due to high inflation.
According to the NBR data compiled by the Bangladesh Garment Manufacturers and Exporters Association, the country’s apparel exports experienced a downturn in the first 20 days of October by 18.67% to $1.77 billion, lower than $2.17 billion in the mentioned period of 2021.
Earlier in September, the shipment of the major exporting items posted a negative growth of 7.52%, dipping for the first time after 13 months since August last year.
According to the Export Promotion Bureau (EPB), Bangladesh earned $3.16 billion in September of 2022, down from $3.41 billion in the same period of the last year.
A number of global brands were suffering from a decline in sales and unsold stocks, compelling many to halt current orders and production at the manufacturers’ end.
Moreover, they also predicted a few months ago, as orders are going down, the growth would be negative from September, and it has happened.
Domestic issues like power rationing, load shedding and severe gas crises also impacted the sector.
Talking to Dhaka Tribune, Faruque Hassan, president of the BGMEA, said that if this inflationary pressure leads to an economic recession in our prime destinations, it will have a major impact on our apparel exports.
“We’ve already experienced a negative growth in export earnings which may be worsened further in the coming months,” he added.
Mohiuddin Rubel, director of the BGMEA said that they already shared early indications of growth slowdown from September onwards, which is now reflected in export data for September.
“This downtrend may continue for the coming months as the global retail market is disrupted by many challenges and then anticipated recession in the global economy, which is halting retail sales and demand for clothing,” he added.
According to the manufacturers, the apparel sector of the country is fearing another drop in orders as rising fuel prices and inflation have cut the consumers’ purchasing power in European countries and decreased the demand for clothing products.
According to various projections, European shoppers are likely to reduce their Christmas purchases by up to 22% which will disallow the top brands, importers of Bangladeshi apparel products, to clear their whole stock.
Industry insiders said that the situation may not change this year and if the brands can clear most of their stocks during Christmas, only then they will place more orders.
However, they also said that the sector needs a few more months, at least till March of 2023, to recover from the losses.
In this situation, manufacturers repeatedly urged the government to ensure uninterrupted gas and electricity supply so that they can meet the demands of clients on time.
Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh told Dhaka Tribune, “During the recession, the two main influences on our economy will be to maintain the balance of payments and fight inflation.
Though the balance of payment problem has started, it is still under control. Meanwhile, our power shortage has become a new headache. Besides, monetary policy is still not used properly by our policymakers. Although we heard that the lending rate may be lifted, it should have been done much earlier”.
