Bangladesh Apparel Sector Report
CAL unveiled its report on the apparel sector of Bangladesh titled “Rags First but Riches to Follow”, indicating a temporary downturn in global apparel exports in 2023 correlated with a slowdown in global output. Bangladesh’s apparel export growth is also expected to be negatively impacted in the short-term but to rebound by 2024.
1. GLOBAL APPAREL OUTLOOK: EMPTY POCKETS
World apparel export growth is expected to dip in 2023 in line with the global economy stemming from the amplified pace of monetary tightening to curb heightened inflation on the back of deteriorating geopolitical conditions. Among major apparel markets, the US is expected to be less impacted than the EU regions, as soaring energy bills dent discretionary spending. However, we expect a rebound in the global economy by 2024 as central banks swiftly shift to expansionary measures following early signs of a recession and a slowdown in inflation.
2. SHORT-TERM OUTLOOK: TIME TO TIGHTEN THE BELT
CAL expects the sober global apparel outlook in 2023E will have a spillover effect and push Bangladesh’s apparel export growth into negative territory. High inflation and increased energy prices will exert upward pressure on wage rates while production costs will remain at elevated levels. Difficulty in opening LCs on the backdrop of dollar shortage will also hamper production output. However, a sharp fall in cotton prices and currency depreciation will help ease pressure on the margins.
3. MID-TERM OUTLOOK: KNITTING THE NEXT PHASE OF GROWTH
We expect global demand to pick up steam in 2024E as central banks shift focus toward supporting growth as inflation recedes. CAL expects Bangladesh’s apparel export to witness a strong rebound with a c. 8.4% growth in 2024E. The apparel export size of Bangladesh is expected to reach USD 56.1 Bn by 2026E. The growth will be driven by three primary factors: i. focus on the MMF, the largest global apparel segment; ii. market share consolidation as order flow shifts from China due to China plus one strategy, and iii. greater product diversification and expansion in the non-traditional apparel markets.
4. GRADUATION FROM LDC: A FEW CARDS UP THE SLEEVE
Bangladesh is scheduled to become a developing country in 2026. Securing Preferential Trade Agreements (PTAs), Free Trade Agreements (FTAs), and establishing strong backward linkage could ensure a smooth transition for the apparel sector toward LDC graduation. Three trends likely to emerge from LDC graduation include i. market share consolidation of well-established apparel exporters ii. product portfolio to have a greater share in higher margin products iii. well-established companies shifting lower-margin manufacturing to countries that still enjoy duty benefits.