The current momentum of Bangladesh’s export growth in Germany, the second largest export market of the country's goods, may slow down in the coming days as the German economy is at risk of shrinking this year.
The German economy is at risk of shrinking nearly 2% this year if the war in Ukraine escalates, and if an embargo on Russian coal, oil and gas leads to restrictions on power providers and industry, according to the Bundesbank.
The estimate translates into a hit to output of about 5 percentage points compared to a March baseline, Germany’s central bank said in its monthly report.
The Russia-Ukraine war that began on February 24 earlier this year, is likely to hit Bangladesh's export to Germany in the mid- and long-term, said diplomats, economists and business leaders.
Bangladesh Ambassador to Germany Md Mosharraf Hossain Bhuiyan, told the media that export of Bangladesh's goods, particularly readymade garments, may slowdown provided the Russia-Ukraine crisis may linger one year and continue unabated.
Since Russia launched a full-scale attack on Ukraine, the export of Bangladesh to Germany still remains unscathed. But if this war prolongs one year and continues unabated, the export growth will suffer, said Bhuiyan.
German consumers will prefer meeting basic needs like food, medicine, fuel and housing and may reduce consumption of readymade garments, he cautioned.
Bilateral trade between Germany and Bangladesh amounts to over $7 billion, with Germany importing over $6 billion worth products, mostly textile.
It is Bangladesh's second largest export market after the US.
In 2020, Germany imported $6.53 billion and exported only $588 million worth of goods.
German inflation rose to its highest rate in 40 years as European Central Bank president Christine Lagarde warned that Russia’s war in Ukraine was delivering a supply shock to the eurozone economy.
Expressing concern on the Russia-Ukraine crisis, Chairman and CEO of Policy Exchange of Bangladesh M Masrur Reaz said that If Russian energy supply stopped Germany and other West European countries, they will go into recession.
In that case, Bangladesh's exports to EU markets may take a hit, he also said.
M. Masrur Reaz, former senior economist at World Bank Group, said that Bangladesh needed to diversify its export basket that is heavily dependent on readymade garments.
Research institutes advising the German government said recently that such a step would cost Europe’s largest economy some 220 billion-euro ($239 billion), the equivalent of 6.5% of annual output, over the next two years.
Germany's economy ministry recently cut its economic growth forecast for 2022 to 2.2% from its late January prediction of 3.6% growth this year as Russia's invasion of Ukraine, sanctions and high energy prices take a toll on output.
Meanwhile, the Bangladesh Garment Manufacturers and Exporters Association (BGMEA) urged the European Union (EU) to continue providing Bangladesh with its support and assistance to help the country in the coming days.
A delegation of the business body, headed by BGMEA President Faruque Hassan made the call during their meeting with an EU delegation recently.
The EU delegation included Jordi Curell Gotor, the director for International Affairs in Directorate-General for Employment, Social Affairs and Inclusion (DGEMPL); Ivo Schutte, deputy head of division, Asia and the Pacific-Regional Affairs and South Asia and few other senior officials in Dhaka.
BGMEA President Faruque Hassan highlighted the long-standing relationship between Bangladesh and the European Union at the meeting.
Meanwhile, German Ambassador in Dhaka Achim Tröster said that the Russia-Ukraine crisis meant a crisis in global oil and liquified natural gas (LNG), leading to a price hike.
A hike in prices of global commodities and uncertainties in the world economy may have an impact on Bangladesh as well. The effects of the oil price hike would be determined by how long the sanctions last, he also said.
The cost of doing business can increase significantly due to the increase in freight rates after oil prices. The conflict may also badly impact the prices of some basic commodities such as wheat, industrial raw materials and industrial machinery as both Russia and Ukraine are major sources for these items, said the German diplomat.
Entrepreneurs are concerned that Bangladesh will lose one of the most promising apparel export destinations such as Russia, if various Russian lenders are excluded from the SWIFT messaging system, said Achim Tröster.
