German recession leaves exporters wary

A sense of fear has spread among exporters recently as Bangladesh’s second largest export destination Germany, also the largest economy in the European Union (EU), witnessed a mild recession due to the ongoing global economic crisis.

Germany fell into recession at a time when Bangladesh is passing a critical moment with its foreign exchange reserves dwindling severely and its two major foreign currency earnings sectors — exports and remittance — not performing well since mid-2022 because of the global crisis caused by the Russia-Ukraine war.

Industry people have said that they are already in trouble due to low export orders from Germany, where the mild recession is likely to linger and create a domino effect in all EU countries. If that happens, Bangladesh’s export earnings from that region will take a massive hit in the coming days.

Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Executive President Mohammad Hatem told The Business Post, “In terms of volume, we are already facing a declining trend in exports to the EU and this recession will reduce earnings further.

“We do not know what is waiting for us. The EU is our top export destination and Germany is their largest economy. All exporters, especially knitwear exporters, will face a critical situation due to this recession in Germany.”

According to the Export Promotion Bureau (EPB), Bangladesh exported products worth $7.6 billion to Germany in FY2021-22 and also earned $5.87 billion in the first 10 months of FY2022-23.

In FY22, Bangladesh earned $7.17 billion from apparel exports (knitwear $4.181 billion and woven $2.99 billion) to Germany, $113 million from home textiles, $107 million from footwear, and $61 million from fish and crustaceans.

According to the German Federal Statistical Office, the country’s economy grew just 0.3 per cent year-on-year (YoY) in the first quarter of 2023, adjusting its initial estimate of zero growth. The country saw 0.5 per cent YoY growth in the last quarter of 2022.

The country, however, posted a 1.8 per cent YoY annual growth in 2022, and the European Commission (EC) has forecast that the rate will go down to 0.2 per cent YoY in 2023. In 2024, the growth is forecasted to rebound to 1.4 per cent YoY driven by a recovery in consumption and investment, according to EC.

Citing the Harmonised Index of Consumer Prices (HICP), EC said that Germany’s inflation peaked at 11.6 per cent YoY in October 2022, driven by the surge in energy prices and rising input costs. It decelerated steadily to 7.6 per cent YoY in April 2023.

Still, the rising production costs are set to keep the HICP inflation high at a projected 6.8 per cent YoY in 2023, and this is likely to ease to 2.7 per cent YoY in 2024 if energy costs decrease, the EC said.

According to media reports, the ongoing Russia-Ukraine war had severely hit Germany’s economy and increased the inflation rate. To control inflation, the German government increased the interest rate but that cut the consumers’ purchase power.

Talking to The Business Post, Momtex Expo’s Head of Business Shahjada Rubel said that German people’s life became tougher due to the inflation and they believed the war will be prolonged. Under the circumstances, people stopped spending more money on clothes, home textiles, footwear and other goods to reduce costs.

“Since the end of 2022, sales of our major buyers such as global brands Lidl and Aldi have dropped, due to which they have reduced orders. So, the recession has impacted Bangladesh’s exports to Germany even before their government’s formal announcement regarding the recession,” he said.

As Bangladesh is dependent on apparel sector exports, the majority of export earnings of this sector came from Germany. EPB data shows that export to Germany has already declined by 7.33 per cent to $5.53 billion in the first 10 months of FY23.

Due to this, the share from the total EU exports declined to 49.78 per cent during this period, compared to 50.01 per cent in the same 10-month period of FY22.

Industry people said that buyers from Germany and other EU countries have already reduced orders due to the recession. Exporters fear this trend will continue until the crisis eases.

TAD Group Managing Director Md Ashikur Rahman Tuhin said that when Germany and other largest EU economies fall into recession, panic spreads to all countries in that region, creating a domino effect.

“When the German government announced they are in recession, buyers reduced orders. Other EU brands are also in fear as they have a big market in Germany and millions of EU people are highly dependent on the country,” he said.

“The EC has projected that the situation will return to normal in 2024, so, we will have to wait until that happens. For now, we are focusing on non-traditional markets to cover the order gap, although the volumes are not enough to survive,” he added.