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Exporters optimistic as inflation dips in key markets

Arifur Rahaman Tuhin
23 Aug 2023 22:13:07 | Update: 23 Aug 2023 22:18:14
Exporters optimistic as inflation dips in key markets

Inflation is coming down back to Earth in the major export destinations, which eases pressure on consumers and businesses, signalling brighter days ahead for Bangladesh’s goods suppliers, mainly apparel exporters.

Since the middle of the last year, most of the country’s export destinations have been facing severe economic crisis and high inflation caused by ongoing Russia-Ukraine war, started on February 24, 2022. For these reasons, the consumers’ purchasing capacity dropped, which impacted the Bangladesh’s export sector.

In the last fiscal year, Bangladesh’s exports dropped in some major destinations, such as the US, Germany, and Poland due to high level of inflation. But due to the declining trend of inflation in major export destinations, exporters are now expecting the turnaround in their business.

They said that if these countries can be able to address crisis, work orders are likely to jump as soon as possible. As the apparel sector is contributing nearly 85 per cent of the country’s export earnings, exporters are highly optimistic that exports may bounce back with the fall in inflation in major exporting countries.

They, however, said that uninterrupted power and energy supply is crucial to taking advantage of the opportunity, urging the government to ensure this as early as possible, considering the country’s economy, industry and employment.

MA Rahim, Vice Chairman of DBL Group, one of the country’s largest exporters, told The Business Post, “If everything goes well, buyers will place big orders in 2024. We expect that the upward trend in order flow is likely to start this November-December.”

Even though Bangladesh looks to diversify the export market and the government provides policy support to diversify exports, 70.97 per cent of its total export earnings came only from 10 countries in the just-concluded fiscal year.

According to the Export Promotion Bureau (EPB) data, the country earned $55.56 billion in the last fiscal year by exporting goods to different countries. Of the total, $39.43 billion came from ten countries--the USA, Germany, the UK, Spain, France, Italy, India, the Netherlands, Japan and Poland. It accounted for 70.97 per cent of total export earnings.

The figure was $ 37.85 billion in FY22 when the country’s total export earnings were $ 52.08 billion. It was 72.66 per cent of total earnings.

Among the countries, eight are in the European region, and two (India and Japan) are in the Asian region.

Inflation scenario

When Russia-Ukraine war started, the global supply chain, especially essential foods, natural gas and fuel, was severely disrupted as Russia and Ukraine are the major suppliers of these items. Besides, as the European Union (EU) is highly dependent on Russia for gas and fuel and Ukraine on wheat and edible oil, inflation soared in the EU countries.

Germany, the largest economy of the EU and also the second largest export destination for Bangladesh, falls into mild recession due to the war. The war also created domino effect on almost all the countries across the world.

The crisis came at a time when the countries were trying to recover from the deadly Covid-19 pandemic impacts. That is why the consumers of Bangladesh’s export destinations failed to absorb the shocks, which severely impacted the country’s export orders.

In the previous fiscal year, almost all major export sectors, except readymade garment, posted a negative earnings growth, and work order have not yet increased as expected.

In a bid to tackle the crisis, the authorities of these countries hiked the interest rates, which were working as a tonic. Now their inflation is coming down to Earth from the sky, according to the countries’ respective authorities.

In January this year, inflation in the US, Bangladesh’s largest export destination, was 6.4 per cent, which came down to 3.2 per cent in July. The country is expecting more decline of inflation in the coming days as they hike the interest rate to reduce the cash flow.

The International Monetary Fund forecast that the rate is likely to decline to 2.3 per cent in 2024.

In early months of this year, Germany, Bangladesh’s second largest export earnings country, witnessed 8.7 per cent inflation and the country is also facing mild recession. The inflation rate declined to 6.17 per cent in July. The European Commission (EC) is expecting that the rate is likely to drop to 2.7 per cent year-on-year in 2024.

The United Kingdom, the third export destination for Bangladesh, witnessed 10.1 per cent inflation in January, which was 6.8 per cent in July. The Bank of England forecast on August 03 this year that inflation will fall to around 5 per cent by the end of 2023.

In this January, Spain’s inflation was 5.9 per cent, which came down to 2.3 per cent in July. The EC forecast that the rate will be 2.7 per cent in 2024.

January inflation rate in France was 6 per cent, which fell to 4.3 per cent in July. The EC expected that the rate will decrease to 2.5 per cent in 2024.

Italy inflation rate declined to 5.93 per cent in this July from 10 per cent in January, and the EC forecast the rate will down to 2.9 per cent in 2024.

Bangladesh’s neighbouring country, India started this year with 6.52 per cent inflation, and it’s down to 4.87 per cent in June. However, India’s July inflation rose to 7.44 per cent.

Netherlands inflation was 7.6 per cent in January and declined to 4.6 per cent in July. The EC expected that the rate is likely to drop to 3.3 per cent in 2024.

Though the Japan’s inflation was near about tolerate level despite the ongoing global economic crisis, and the country witnessed 4.3 per cent inflation in January. It decreased to 3.3 per cent in July. The Japanese government expects inflation to hit 1.9 per cent in fiscal year 2024.

Another EU country, Poland witnessed 16.6 per cent inflation in January, 2023 and which was 10.8 per cent in July. The EC expected that the rate will decline to 6 per cent in 2024.

Exporters’ version

Industry insiders said that though the inflation rate is declining in the major export destinations, they are yet get any advantage from declining trend. They, however, expect that thanks to the curb of inflation, the consumers’ purchase capacity will increase, which help to up brands’ sales.

As a result, buyers will place more orders to the sourcing countries, and Bangladesh will take advantage of the development.

DBL’s vice chairman Rahim said, “In the next year, apparel sector will be able to receive a good number of orders. But the price would be tight as the buyers’ sales also dropped during the inflation and many also suffered a huge loss.” 

Momtex Expo Head of Business Management Shahjada Rubel said, “Though Bangladesh is yet to have advantage from the falling trend of inflation in its export destinations, result will start to come from November-December.”

“I think Bangladesh’s exporters will enjoy a good time in the next year.”

Shoes Bangladesh Managing Director Rajib Ahamed said, “Our order situation did not change despite the inflation is coming back down in export destinations. But we are expecting that order flow will increase in the coming days.”

Syed Ali Alfe Sany Akash, Executive Director of Monami Impex, a jute goods manufacturing factory, said, “Our major export destination is still facing economic and political crisis. That is why export order for the jute sector will not increase overnight. It will take long time to improve.”