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Breakneck Inflation Shrinks Bangladesh, Vietnam Garment Orders

The world’s second- and third-largest garment exporters after China, still smarting from the economic fallout of Covid-19, are bracing for a drop in orders as customers in their biggest markets grapple with breakneck inflation.

Bangladesh was already struggling with escalating food and energy prices as a result of the Russia-Ukraine war. The South Asian nation on Sunday asked for a $4.5 billion loan from the International Monetary Fund, joining its neighbors Pakistan and Sri Lanka in seeking relief from dwindling foreign reserves and a ballooning trade deficit.

Although Walmart’s slashed earnings outlook this week augurs ill for the country, which relies on garments for more than 80 percent of its exports, the warning signs were already there, said Faruque Hassan, president of the Bangladesh Garment Manufacturers and Exporters Association.

“Orders have slowed down,” he told Reuters Wednesday. “Western countries are raising bank interest rates. That’s why people are giving priority to food and mortgages. Demand for clothing is less. This will hamper our export.”

The European Union accounts for roughly 60 percent of the nation’s garment sales, while the United States makes up around 20 percent. Both economies have been teetering on the brink of a recession that would pump the brakes on any post-pandemic “revenge spending.”

Bangladesh’s exports took a nosedive last July when the novel coronavirus was still ravaging most of the globe. ​​In the year since, exports rose more than 34 percent to $52.08 billion—a record high, according to ​​Export Promotion Bureau data.

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This could change if major buyers like Walmart are unable to shift excess stock because consumers are shelling out less for discretionary items like clothing in the back half.

“If Walmart’s cut-price sales do not help, we are going to have a tough time,” Siddiqur Rahman, owner of Laila Styles, a factory that supplies to H&M, Walmart and Zara, told Reuters. “Our orders could look up from October onwards for Christmas demand. But if retailers’ inventory is full, they will refrain from placing orders.”

Bangladesh’s biggest rival, Vietnam, which briefly usurped the No. 2 spot, is also staring down decreasing orders, potentially rolling back gains that saw garment exports spike by $3.19 billion in the first half, according to the General Department of Customs.

The Vietnam Textile & Apparel Association chairman Vu Duc Giang told reporters last week that the Southeast Asian country is poised to hit $43 billion in garment exports this year, but that inflationary pressures on the United States and Europe remain a looming threat.

The Russia-Ukraine war has also driven up the prices of cotton, crude oil and petrol by 19.1 percent, 40 percent and 67 percent respectively since the start of the year. With transportation costs now thrice as much as they were, on average, during the past five years, Vietnamese exporters are now facing a 20 percent to 25 percent uptick in expenditures.

Garment exports, which make up 16 percent of Vietnam’s gross domestic product, are a major contributor to the country’s economy.

Speaking to VnExpress on Sunday, the manager of an unnamed children’s wear manufacturing in Dong Nai said that it used to receive orders of between 80,000 to 100,000 units every month from the United States. The numbers have dropped by 20 percent to 30 percent of late, however.

“At the beginning of the year, after the pandemic situation was under control, countries reopened and our partners urged us to deliver goods quickly, but now they are very indifferent,” the manager said.

Trần Như Tùng, chairman of the Thành Công Textile Garment Investment Trading JSC, which produces and trades yarn, fabric and garments, said that demand for Vietnamese garments could drop further in Q4 because U.S. firms are more cautious about placing orders in the wake of the Uyghur Forced Labor Prevention Act, which outlaws products linked in whole or in part with Xinjiang.

“Firms are uncertain about the future, so they cut down on garment import[s] to avoid risk,” he told Vietnam Economy News earlier this month. A coalition of organizations from Vietnam recently urged the Department of Homeland Security to cast a closer eye at exports from country, which it claims has been importing raw cotton and semi-finished cotton goods from the Chinese province.

While Thân Đức Việt, general director of the Garment 10 Corp., which specializes in dress shirts, said that the number of orders it has received is large enough to keep production lines humming until late 2022, demand uncertainty has left it no choice but to tweak its schedule more frequently.

“Previously, we adjusted the production plan quarterly or monthly, but now we have to do that weekly or daily,” he told Vietnam Economy News. “We have no other choice because it is the only way to adapt to the volatility.”