Apparel makers witness slowdown in orders as US and Europe fight decades-high inflation, economic slowdown

• July apparel exports hit fresh high of US$ 551mn, up 21% from a year ago

Although Sri Lanka’s apparel sector has shown resilience through numerous challenges. the industry is seeing some holding back in the order flow from its key markets due the global economic slowdown where the consumers are seen pulling back on their spending. 

According to Hasitha Premaratne, Chief Strategy Officer and the Group Finance Director for Brandix Lanka Limited, deceleration in demand for apparel in the last six to nine months has been witnessed and he expects the condition to remain for at least further six to nine months before any recovery is seen. 

Premaratne pointed out that besides the consumer squeeze in the West caused by the decades-high inflation, leading apparel retailers also operate with some sizable inventory as they stockpiled in the last couple of years, which could be enough to meet the demand for some time. 
“That creates a double whammy where in one side there is a drop in demand and sales and on the other hand they have inventory in hand. Which means they have to cut down new orders,” Premaratne told a leading investment bank speaking at one of their industry insights series. 

He however emphasized that this is not something felt only by the local apparel makers but is felt across the global apparel supply chain. 
As the US Federal Reserve (Fed) and the European Central Bank (ECB) are battling decades-high inflation via outsize interest rates increases, there is a broader consensus that they could tip each of their economies into recessions in 2023. 

For instance the ECB raised rates by 0.75 percent on Thursday, the largest since the early days of their currency union, after a 50 basis points hike in July and signaled further hikes in the coming months.
Meanwhile on the same day, Fed Chairman Jerome Powell at a virtual forum stayed with his message hike rates until inflation is brought down to 2.0 percent, signaling another 0.75 percent hike in September, after back-to-back similar sized rate increases in June and July. 
Premartane further said he sees a relatively bigger decline in orders for lower-end of the market than the middle and higher ranges, signalling that inflation has mostly affected the people with lower income.
Meanwhile, impact on apparel categories such as loungeries have been minimal compared to other categories, he observed. 

Turning to the local context under which the apparel sector operates amid fresh challenges caused by the economic crisis, Premaratne said the sharp currency depreciation had put Sri Lanka in a relatively competitive spot than the regional peers such as India, Bangladesh and Vietnam. 
While the costs have also escalated, the weaker rupee has largely offset the cost implications due to the same weaker rupee translating into higher topline. 
According to most recent external sector data, textile and garment exports rose by a robust 21.4 percent to US$ 551.4 million in July with the cumulative seven-month earnings increasing 20 percent to US$ 3,528.7 million.