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Bangladesh - Corporate - July 26, 2022

RMG sector fears another recession

All central banks in the world raised interest rates to curb inflation

Golam Mostafa Jibon: Country’s RMG sector is facing uncertainty again due to global economic turmoil including acute crisis of power and energy centering the Ukraine-Russia war.
During the corona pandemic, the world economy including garments sector had fallen in trouble. Economy of the most countries in the world was curtailed. Then slowly it tries to turn around. But the garment industry is on the brink of another recession due to impact of the current Ukraine-Russia war. Meanwhile, it has created a large shaped of pressure on the country’s power and energy sector that hits production and marketing in RMG sector.
Economists firstly predicted bright prospects for the global economy in 2022. But the Ukraine-Russia war that started last February has changed all the calculations. This war has once again disrupted the economy of the whole world, which has also affected Bangladesh. Economic analysts believe that, due to the recent war between Ukraine and Russia, there may be a slowdown in the world economy especially in the western world in the coming days. The experts apprehending that export-import over RMG may face difficulties again. Businessmen are also worried about the current recession. They said, 56 percent of Bangladesh’s total garment exports go to European countries.
Due to the turmoil, about 20 percent orders of clothing products have already decreased in the European market.
In early 2009, many countries were hit by recession. In late 2008, the United States entered into a recession. At that time, it had an impact in Bangladesh as well. There is no universally accepted definition of recession. However, in the definition of economy, if the economy shrinks in two consecutive quarters, it can be called a recession. According to the International Monetary Fund (IMF), when the world economy grows below 3 percent, the situation is called a global recession.
According to the Washington-based multinational, a global recession occurs every eight to 10 years. In the three recessions that the IMF has termed global recessions over the last three decades, per capita growth rates around the world were either zero or negative. The last global recession occurred in 2008-2009.
Economists said, the impact of recession is mainly due to credit contraction and disruption of production activities. As a result, the expansion of the economy is hindered. This results in dysfunction. It becomes more pronounced when the recession is prolonged.
In response to the war, Western countries imposed various sanctions on Russia. Especially due to the ban on the sale of oil and gas in Russia, the prices of these two products increased a lot in the world market. As a result, the price of fuel oil increases in almost all countries of the world including Bangladesh. Production costs increase. Not only developing countries like Bangladesh, people in Europe and America are also struggling to pay the price of fuel. As a result of this, the common people have become helpless under the increasing pressure of inflation in the country. Bangladesh has seen the highest inflation in 9 years recently. For the time being, almost all central banks in the world have raised interest rates to curb inflation. It reduces the flow of money. It is feared that. several major economies of the world will fall under the recession this year.
Renowned economists of the country expressed mixed reactions to the impending global recession. One side said, Europe will go into recession because of the war as Europe has suffered the most in the ongoing war. Apart from this, there may not be recession in other countries. But the GDP growth rate will decrease.
According to the other side, if there is a global recession, all countries will suffer more or less. Even if there is no recession in major economies including the United States and China, GDP growth will decrease. Because the US had its own oil, the impact of the war was not so great. China is different. Lockdown is stilling going on in different countries due to Covid-19 surge. As a result, the country’s growth is slow. China’s growth has been less than 1 percent in the last three quarters. Asian countries including neighboring countries India are dependent on Middle Eastern oil. As a result, the economy of this region has a low probability of recession. But growth will slow down. Expectations of economists, Bangladesh will not fall under the grip of recession. Exports are good here. The economy is stable. As a result, there is no risk. However, growth may slow. Because of Bangladesh is the big market of Europe. There, due to the recession, garment exports, a major sector of export earnings, will be hampered.
Executive Director of PRI, a research institute related to this sector Ahsan H. Mansoor said, “The situation of each country will be different due to the Ukraine-Russia war. But all the countries are showing downward trend of growth. Recession will occur in some countries. It may not be in any country. It will depend on the capacity of the countries to deal with the recession and what kind of policy support is provided.
Former Senior Director of Bangladesh Development Research Institute Zayed Bakht believes that there is a risk of recession all over the world. Countries are adopting austerity policies to reduce inflation. As a result, there is a risk of global recession. When asked what will be the impact on Bangladesh, he said that all countries can be affected if there is a global recession. Bangladesh is not out of this. To deal with this, the internal demand of the country should be increased. In order to keep the wheels of the economy moving, the government expenditure should be increased.
Rob Subbarman, Chief Economist at Washington-based research firm Nomura revealed that, the United States is headed for a long-term recession soon. This recession will be felt for five consecutive quarters from the last quarter of 2022, although this time the recession will not be as deep as it seems. The Office for National Statistics fears that the UK will also fall into recession in the last quarter of the year.
Mohammad Hatem, Executive President of knitwear owners association BKMEA said that, the recession has already started in Europe. This has resulted in a 20 percent reduction in orders for apparel products next quarter. Two challenges have to be faced in overcoming the situation. One of them is quick resolution of gas crisis, while another is stabilization of dollar market. In order to maintain exports, the dollar buying-selling difference should be kept between Tk 1 to Tk 1.5 maximum.
He believes that, Bangladesh Bank should intervene urgently in this matter.

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