Inflation rates in major destinations for Bangladeshi apparel exporters has been declining since July, might just finally bring some relief to the global economy.
Apparel manufacturers are optimistic that if inflation keeps declining and major destinations can further address the inflation problem, work orders will certainly increase and export figures may rebound in 2024.
According to industry insiders, since last year, the majority of the country's export destinations have been experiencing severe economic turbulence thanks to higher inflation brought on by the ongoing Russia-Ukraine war, which began on February 24, 2022.
The turbulent situation in major destinations shrunk the purchasing capacity of its consumers, which in turn impacted Bangladesh's exports.
Bangladesh's exports to some key destinations such as the United States, Germany, and Poland dropped in the preceding FY23 due to high inflation.
To combat the inflationary situation, the governments of the respective countries raised their interest rates, which impacted the mortgage, energy and daily costs of the consumers and curtailed their purchasing capacity.
However, as inflation in those export destinations are on the decline, exporters are now expecting their industry to rebound.
However, they also said that there are still challenges as the US and Germany may reduce their interest rate after cooling their respective inflation rates to 2% or less.
Global inflation
With the start of the Russia-Ukraine war, the global supply chain of essential foods, natural gas, and fuel, was severely disrupted.
Moreover, the European Union (EU) is highly dependent on Russia for gas and fuel and Ukraine on wheat and edible oil, meaning inflation rose in the EU countries.
According to Statista, in January this year, the US -- Bangladesh’s largest export destination -- saw 6.4% inflation, which later fell to 3.2% in July.
Inflation is projected to decline further in the coming days as the government will raise interest rates to reduce cash flow.
Furthermore, the International Monetary Fund expects that rate to fall to 2.3% by 2024.
Germany, the largest economy in the EU and also the second largest export destination for Bangladesh, fell into a mild recession due to the war.
According to Destatis, the German inflation rate soared to 8.7% in January in 2023. It however, eased to 6.2% in July.
The European Commission (EC) is expecting that the rate is likely to drop to 2.7% year-on-year in 2024.
According to data from the Office for National Statistics (ONS), the United Kingdom, Bangladesh’s third export destination, had 10.1% inflation in January, which eased to 6.8% in July.
Recently, the Bank of England predicted that inflation will fall to roughly 5% by the end of 2023.
Spain, one of the major destinations for Bangladesh’s RMG items, witnessed an inflation rate of 5.8% in January 2023, which fell to 2.1% in July, Eurostat noted. Moreover, the EC forecast that the rate will be 2.1% in 2024.
The January inflation rate in France was 7%, which fell to 5.1% in July. The EC expects that the rate will decrease to 2.5% in 2024.
The overall inflation of the EU was 10% in January, which fell to 6.1% in July, said the Eurostat Data.
The inflation rates in other major destinations like Italy, Netherlands, Poland, and Japan also witnessed a downtrend in the recent months.
What exporters say
Talking to Dhaka Tribune, Faruque Hassan, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said that declining inflation in export markets is a ray of light.
“We expect purchase orders to increase from the end of this year, while our exports to major destinations in 2024 will also increase,” he also said.
However, the EU and Germany have taken an initiative not to cut interest rates until the inflation rate falls to 2%, which may bring some challenges.
“Due to higher interest rates, the living expenses of the consumers of these countries have shot up, so they have curtailed their clothing budget,” Hassan also said, adding that since inflation is coming down, maybe they will increase their budget for apparel wear again.
These countries will also increase imports because they have reduced imports in the last few months and inventories were also less, he added.
Shahjada Rubel, head of business management of MomtexExpo, said that though Bangladesh was yet to benefit from the declining trend of inflation in its export destinations, the results may be visible from November or December at the end of this year.
“I am optimistic that Bangladeshi exporters will enjoy a prosperous future next year,” he added.
In FY23, the country bagged $55.56 billion. Of them, $46.99 billion came from the RMG sector, according to the Export Promotion Bureau (EPB) data.
Bangladeshi RMG exporters earned $32.7 billion from its 10 major destinations, meaning almost 70% bagged from just 10 countries like the US, Germany, UK, Spain, France, Italy, Netherlands, Poland, Canada and Japan -- when most of them were struggling against inflation.
Almost all major export sectors, except the RMG, witnessed negative earnings growth in FY23, while work orders also dropped.
Manufacturers said that uninterrupted power and energy supply were important to maximize on the momentum.
They urged the government to provide necessary policy support in this regard.