Bangladesh well-placed to ride out recession

Uncertainty is the name of the game in the world right now. One crisis ends and another begins, each one seemingly bigger than the last. We have been dealing with the pandemic, then we witnessed the Russia-Ukraine war break out, which impacted the global energy prices. Now the threat of global recession looms over us.

Where does all of this leave our ready-made garment (RMG) industry? Or, a better question would be: Where will the RMG industry be in six months' time? This question is important, because its answer will greatly impact Bangladeshi apparel makers.

While I always try to take a positive stance on business issues, it is hard to maintain a "glass half-full" attitude at present. The current economic headwinds we are seeing don't bode well. A widely agreed definition of recession is two consecutive quarters of falling economic output. By that definition, the US is technically in recession and the UK is not far behind. Nor is the European Union.

These are all major spending markets for fashion and RMG products, and the constantly poor economic news coming out of them does not provide a great deal of confidence.

Read more

Our own resources can help us get over the energy crisis

One could add that there is at present a "cost of living" crisis across much of the Western world. The Russia-Ukraine war is placing huge upward pressure on international energy prices, and this is impacting households both in terms of how people heat their homes and how they put fuel in their cars. All of this has a net impact on discretionary expenses, such as clothes.

Recessions don't happen overnight, and people don't stop spending from one day to the next. What we generally see is a steady tightening of belts as people adjust to new circumstances and/or the loss of jobs. One thing that will impact spending on clothes hugely over the coming months is whether or not businesses in the West begin to lay people off from jobs. And the timing of that could be critical. If we see a job purge in the run-up to Christmas – September to December, for example – this will obviously hit the Christmas spending and could spell bad news for RMG factories. If businesses delay redundancies, then spending could hold up for a few months more.

There are a couple more factors to mention. One is that the Western governments are currently wresting with inflation. The traditional way to reduce inflation is to raise interest rates (or taxes). Higher interest rates will ultimately hit consumer spending. Near the end of July, the European Central Bank raised interest rates for the first time in more than a decade. If inflationary fears persist across the Eurozone, interest rates may rise further. Remember, inflation has not been an issue across Europe and the US for many years. We are in relatively new territory here.

Likewise, the UK has raised interest rates in a bid to get a lid on inflation. Once the inflation genie is out of the bottle, it is hard to put it back in, so governments will not concern themselves much about the impact that rising interest rates have on consumer spending. Governments have often seen jobs as something worth sacrificing to tackle the rising prices.

The second issue around the purchase of fashion is this: people will always need clothing. So, while a recession could lead to people reducing their spending on fashion, it does not mean they will stop buying clothes altogether. It might be that people purchase fewer items or it could be that they look for better value. Fast fashion as a business model is often criticised. Yet, it could be that we will see a flight away from luxury fashion and a shift towards budget, value fashion if consumers are forced to tighten their purses in the coming months.

This could potentially spell good news for Bangladesh. One of our weaknesses as an RMG exporter has historically been our reliance on low-value staple items. Yet, this weakness could turn into a strength if the threat of an all-out global recession materialises and households are forced to slash their expenses.

Read more

Good planning requires accurate data

We may even be seeing this playing out already, in fact. On August 4, the largest apparel buyer from Bangladesh, H&M, launched a new leisurewear line, the "Move" collection. H&M says it is on a new mission to make sportswear a little more accessible, and the line offers practical and fashionable clothing for those on a budget. Other fashion retailers could take a similar line.

Other fast fashion retailers that are sourcing from Bangladesh may find themselves faring well in a global downturn as consumers move away from well-known, high-end labels and towards more affordable fashion. Bangladesh has made its name in must-have staple items, many of which are almost recession-proof: jeans, T-shirts, jerseys and so on.

Things will be tough in the run-up to 2023, but Bangladesh is as well-placed as any sourcing destination to ride out the challenges that lie ahead.

Mostafiz Uddin is the managing director of Denim Expert Limited. He is also the founder and CEO of Bangladesh Denim Expo and Bangladesh Apparel Exchange (BAE).