Amidst surging inflation and economic turmoil in the European Union, Bangladeshi apparel manufacturers dependent on the EU market are in trouble as export orders from the market are decreasing.
The drop in export orders would potentially impact Bangladesh's FY24 export earnings, apprehend the exporters.
The EU represents half of Bangladesh's clothing export sector, with FY23 earnings totalling $23.52 billion out of a total export value of $46.99 billion.
Industry experts note that most EU buyers, except for Italy, have reduced their orders and delayed payments due to severe inflation affecting consumer demand for clothing. Although inflation rates have eased in some EU countries, these changes have yet to translate into increased export orders.
Efforts to diversify into other markets have been largely unsuccessful for many exporters.
Abdullahil Rakib, managing director of Team Group, explained, "Orders from EU markets have significantly declined, and there is no good news in sight. The ongoing Russia-Ukraine war has had a global impact, and people of EU countries are struggling to meet their basic needs. While inflation rates in EU countries have recently decreased, this has not yet improved consumers' livelihoods. Many citizens are forced to take loans to make ends meet."
Fazlee Shamim Ehsan, CEO of Fatullah Apparels, expressed the challenges of depending entirely on the EU market and operating at reduced capacity due to low orders and inadequate pricing. He said, "Although EU inflation has decreased recently, it will be tough for us to survive as our orders have plummeted."
“I’m fully EU market dependent and for a long time, I run my factories with lower orders than capacity. Even their price is not enough to survive.
According to Eurostat, annual inflation in the Euro area fell from 9.1 per cent in August 2022 to 5.3 per cent in August 2023, marking the lowest rate since January 2022. The rate was 6.9 per cent in this March, 7 per cent in April, 6.1 per cent in May, 5.5 per cent in June, and 5.3 per cent in July.
This decrease in inflation is primarily attributed to declining energy prices. However, industry insiders point out that despite these improvements, consumers remain apprehensive due to the prolonged Russia-Ukraine conflict and the EU's heavy reliance on fuel and gas imports. Concerns persist that gas prices may rise in the upcoming winter, potentially leading to a resurgence in inflation.
Md Khosru Chowdhury, managing director of Nipa Group, noted that the sales of most EU brands, especially those in Germany and Poland, have not improved significantly, resulting in limited orders. "Germany is our second-largest market and the largest economy in the EU. However, their recent economic decline has affected the entire Eurozone, leading to reduced orders," he stated.
According to the Eurostat, the country put into a mild recession in the first two quarters of this year and posted 0.1 per cent and nearly 0.3 per cent Gross Domestic Product (GDP) growth respectively.
Khosru emphasised the need to diversify into non-traditional markets, revealing that he diversified export destinations sensing a crisis in the EU and now exports 30 per cent of goods to the EU, 40 per cent to the US, and the remainder to non-traditional markets. Although prices in non-traditional markets may be less favourable, diversification has become essential for survival.
Despite challenges, the extended winter in the EU has boosted orders for sweater and winter clothing manufacturers. However, pricing pressures persist.
Md Shahidul Islam, managing director of Rupa Group, stated, "This season is the peak for sweater manufacturers, and we have received more orders than in previous years. However, prices remain insufficient, and we have bookings until next December, indicating that the order situation is not excellent."
