This year’s expected global slowdown could hit Bangladesh’s key garment industry hard. We see the sector’s exports growth falling by roughly 3 percentage points in 2023 as world demand for clothing slows. 

This will add pressure on already-dwindling foreign exchange reserves and weigh on GDP. The damage could also be worse if persistent power outages at the country’s factories cause overseas buyers to shift orders elsewhere.

• Growth in Bangladesh’s garments exports falls by 4 percentage points for every 1 ppt that global growth slows, according to our calculations.
• In 2023, this should mean growth in apparel shipments decelerates to 24.4% from 27.6% a year earlier. The slowdown implies $1.5 billion less revenue than if shipments maintained last year’s pace.
• The garment industry is key to the overall economy. It accounted for about 9.3% of GDP in the fiscal year through June 2022. The sector also made up 82% of total exports last calendar year, earning $45.7 billion, an amount exceeding the country’s FX reserves of $34 billion at the end of 2022.
• The slowdown in clothing shipments will be the largest drag on the expansion in 2023, shaving an estimated 0.8 ppt from GDP growth. Overall growth will likely fall to 6.1% from 6.9% in 2022.
• The damage could also be worse. Competitors like Vietnam could take market share. There is a heightened risk that overseas retailers will cancel existing orders with Bangladesh’s firms given power outages that have plagued the industry due to fuel shortages.
• Our analysis only quantifies the impact of the expected slowdown in global growth (which Bloomberg Economics estimates falling to 2.4% in 2023 from 3.2% in 2022) and doesn’t account for these other risks.

Ankur Shukla is Indian Economist for Bloomberg Economics in Mumbai.

Source: TBS News