Textiles and impending global recession

22 November 2022, Mumbai:

Inflation-induced economic stress and the energy crisis are affecting the global textile sector and will have far-reaching implications on development issues. Coupled with a reduction in disposable incomes in the UK and EU & looming recessionary pressures will impact the global textile industry.

The textile sector is bracing itself for a challenging time ahead. The article tends to take a deep dive into how the textile global economy is getting affected by falling overall export demand to the US and the EU, economic headwinds & its far-reaching financial fallout leading to banking crisis threat and shrinking global trade.

Global Uncertainty Lingers

The global cotton demand outlook continues to be benign in this recessionary environment and delving into how new cotton harvests are arriving in India and the High Plains of Texas does not augur well for the Cotton and Textile Sectors.

As per industry estimate, the world apparel market size presently is approx US$ 1.7 trillion and constitutes some 2% or thereabouts of the global GDP. Economic Tsunami; Considering the world economy is witnessing economic strong headwinds & a synchronized structural slowdown leading to a precipitous fall in global trade, supply shocks, and broken supply chains worsened by unequivocal policy uncertainties for a considerable time now. Adding to this near-recessionary global trend in some sense was China's zero-COVID policy.

It is well accepted globally now that the war between Russia and Ukraine has been no less than a black swan event hitting back-to-back post-covid 19 pandemics resulting in unprecedented weakening of the global economic/business environment and global credit issues.

The world's recession may throw a wet blanket; While the issue surrounding high cotton and raw materials costs has occupied the textile industry for a few months now, it is important to focus on the demand aspects. The demand for textile products has slowed down due to global geopolitical and economic situations.

Imported inflation is serving no one's purpose

But a section of the industry feels that the rate hike would dampen demand given that prices to end consumers could rise. Imported inflation pressure remains the overarching risk. The Russia-Ukraine political conflict deals a major blow to the global economy hurting global growth and raising prices mindlessly triggering energy poverty.

The global central banks are under mounting pressure to maintain price stability against elevated inflationary expectations/outlook. Here it is pertinent to mention stable prices are a necessary condition for persistent economic growth and inflation is inimical to growth.

Impact on Indian textiles

The textiles and garment sector plays a significant role in the Indian economy in terms of employment, value contributed, and export revenues. Recently Cotton Association of India (CAI) a prime mover, released its 2022-23 cotton supply and Indian demand prognosis and estimates on the back of global demand headwinds and the available trade data points," Cotton production in India during 2022-23 (October 2022 to September 2023) is estimated to be 34.4 million bales (170 Kgs/bale), while the total supply will be 38.78 million bales (170 Kgs/bale). The consumption is estimated to be about 30 million bales, which is lower than the previous year’s consumption".

Indian domestic consumption by spinners is expected to be lesser by 1.8 million bales vis-à-vis last cotton year, mirroring/echoing muted demand or a not-so-optimistic scenario. Like-to-like comparison Yarn demand is not as great as what we witnessed during the corresponding previous year, given that daily cotton yarn production from June to October 2022 was just about 60% of its usual production levels speaking column of the prevailing weak demand.

The US-China cotton ban has only compounded the problems of India's cotton yarn spinning industry on the back of Chinese tactical cheap offerings leading to unintended & far-reaching consequences in the past couple of months.

According to Textile Secretary U.P. Singh, the Ministry of Textile demand has decreased due to the US's high inflation rate, particularly for home textile items since they are more price-sensitive than clothing and apparel.

Sakthivel, President of the Tirupur Exporters Association, said, "There would undoubtedly be some impact on textile shipments to the US." Items with lower value and a price tag of $3 to $7 per piece will be less impacted. “Yarn enquiry is not there currently,” stated Mr. V. Shanmugam, GM of Aruppukkottai, Jayalakshmi Textiles.

According to Virendra Sharma, the president of Oswal Wool Mills in Ludhiana, which owns the Monte Carlo brand, As much since 85% to 90% of our output is for the domestic market, and on the back of strong festive demand besides exuberance, one has started to see around wedding season, strong early offtake indications of winter merchandise only comes in as a cushion to Indian textile sector.

According to Wazir Advisors, the domestic market fell 30% last year, to $75 billion in 2020-21. The industry is expected to increase to $190 billion by 2025-26.

To play devil's advocate it does not come as a surprise to anyone that of late, the Government of India is beginning to come out with encouraging/supportive policies favouring MMF/synthetic sector to build capabilities and capabilities in response to its rising global sustainable demand tailwind.

Tremors of upcoming recession in the western world are felt across the textile sector worldwide

Bangladesh

A case in point Small and fragile economies are struggling in this new scenario and Bangladesh is a good case study.

India and Pakistan face similar challenges

In India, textile exports face challenges like their neighbors due to a decrease in demand from traditional buyers in the West and China. Since Pakistani textiles are mainly exported to China, US, Germany, and Spain, it is beginning to feel the backlash of the high inflation and the impending recession about to hit Western importers. Meanwhile, China has also steadily declined to import textiles from Pakistan.

China

If the recent ET report is to be believed the situation is no better in China the biggest global exporter of textile merchandising exports," The snapshots from factories in key Chinese hubs indicate subdued manufacturing activity on the back of households spending budgets in developed/advanced economies having come down/they don't have money to spend with heightened inflation biting day in day out adding weight to the argument raising flags/warnings about an impending global recession and protracted slowdown.

How does the global textile industry weave/stitch success during a recession/slowdown?

How to tide over recession; As per Dr. Seshadri Ramkumar, Ph.D., CText, FTI (UK), FTA (Honorary), TAPPI Fellow (USA) & TexSnips," Textile & manufacturing sectors must adopt a new management paradigm 'Caveat Emptor et Venditor'. It indicates that both buyers & sellers must pay attention to global scenarios to have the situation under control. The industry should be cautious in its planning in terms of modernization and non-essential capital expenditure"

There is a compelling need for cotton demand creation to explore new markets, innovation-led value-added production, cost efficiency, margin accretive approach, and deploying sustainable production best practices on the back of improved efficiency and productivity is the way forward as a textile business is got commoditized.

Everybody needs to keep the powder dry as war has unambiguously eroded near-to-mid-term global economic recovery/revival prospects post-pandemic. Overall, governments and manufacturers are coming together to find solutions to ride out this crisis as it involves valuable dollar earnings and employment.

Eventually, together we will have to tick all the boxes right changing the narrative of our playbook to keep going as the cliché is this shall also pass.

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