The Fabric Year 202318. August 2023
The depressed condition of the global textile and apparel industry will be illustrated by import flows during the first three quarters into major industrialized countries. The selection of eight major textile and apparel importing countries (Americas: Brazil and USMCA; Asia: Japan and Korea; Europe: Türkiye and UK) and the 27-nation EU area comprises a total population of 1.5 billion, equal to an almost 20% global share. Their joint import value in 2022 accounted for USD418 billion which corresponds with a roughly 41% share based on WTO world figures.
Their cumulative monthly performance was negative in every single month. Worsening in Q1 was followed by modest improvements before Q3 witnessed further sharp contractions again.
Steady negative growth rates have been seen in the European Union, UK and the U.S. during the January to September period. Canada produced double-digit growth in January and February, smaller gains were realized for both months in Mexico as well as for Brazil and Japan in January. March was characterized by expansions in Japan and Korea. The apparent recovery during Q2 was result of double-digit gains in Brazil only, smaller increases occurred in Japan in April and Mexico in June. Q3 implied monthly losses in all selected countries and the EU.
Brazil’s economy recovered from the quarter-on-quarter decline in Q1 with more than 3% expansion in both Q2 and Q3. The strong growth was in parts driven by a bumper soybean harvest. The country is the world’s top soybean and corn exporter. Latest forecast by National Agricultural Supply Company includes another expansion by 5% of soybeans in 2024 while corn projection assumes a 9.5% decrease. However, effects of El Nino threaten Brazil’s run at another record. Automotive manufacturing in the first three quarters slightly declined 0.3% as exports are set to plunge by double digits, down by 16% in Q2 and by 21% in Q3. The automaker association Anfavea justified lower shipments with the severe economic crisis in neighboring Argentina. Total import value of textiles and clothing softened less than 1% thanks to a strong Q2 but quarterly values have been drifting since Q3 last year. The import value of apparel surged by 21%, cotton chapter soared by 29% whereas both manmade fiber chapters contracted, filament by 9% and staple fiber by 16%.
Canada’s GDP expanding 0.6% in the first quarter, was basically unchanged in the second and may contract in the fourth quarter as consequence of a deceleration at its major trading partner, the U.S. The notable slowing in economic momentum was reflected by reduced consumer spending and a weakening housing market. The unemployment rate edged higher in spring, rising steadily from 5.0% in April to 5.7% in October. The labor force data suggested that workers may be having more difficulty finding new employment opportunities as the job-changing rate was significantly below its pre-pandemic average. Likewise, quits in the U.S. until September dropped by 11% compared with the same period one year ago. Sourcing value of textiles and garment fell 12% to USD13 billion with losses across the value chain.
Growth in Mexico is expected to surpass 3% in 2023, almost double the Latin American average, driven by private consumption despite weakening retail trade growth and robust investments with a historic amount of FDI worth USD33 billion in Q3. Further support arose from a notable strength in services, construction and automotive industry. Passenger car output soared 40% in January to October period while light vehicle production improved 10% leading to a potentially new record in full year manufacturing. The economy was further supported by record-low unemployment rates and record-high manufacturing capacity utilization rates. The country’s foreign sourcing of textile and apparel was reduced by 4% to nearly USD10 billion. The share of clothing deliveries has increased essentially due to 13% expanded woven garment imports. Precursor material for domestic processing saw a 32% contraction in the cotton chapter, 8% decline in the manmade filament chapter and a 13% drop in the manmade staple fiber chapter.
The U.S. economy experienced very strong growth in Q3, marking the fifth quarterly gain in a row. Real GDP rose at an annual rate of 5.2% in Q3 according to the Bureau of Economic Analysis. The labor market has lost steam with the unemployment rate increasing from 3.4% in January to 3.9% in October – its highest level since January 2022. Employment along the textile chain revealed steady losses to hit the lowest level in October since summer 2020 with sharpest reductions at textile product mills. Total retail sales in the first ten months recorded an increase of more than 3% while sales in clothing stores advanced a little more than 1% but fell 5% at furniture and home furnishings stores. The average retail inventories-to-sales ratio in the first three quarters remained above the previous two years while apparel manufacturers’ ratio witnessed improvements versus the century peak in August 2022. Worsening of consumer sentiment continued in November, marking the fourth consecutive decline. Consumers became more pessimistic about the economy with 22-year high interest rates. Retail spending in October was cut for the first time since March. Building and construction sectors led to a more than one-year weakness in new privately owned housing units authorized by building permits, residential construction spending fell 9% in the first three quarters whereas non-residential spending soared 18%. U.S. textile and apparel imports recorded cumulative 9-month deliveries of USD81 billion, reflecting a shortfall of $23 billion, equal to a drop of 22%. Best-performing top-10 supplying industries in the January to September period were Italy following 3% losses to $2 billion and Mexico (-5% to $3 billion) while the remaining industries suffered from contractions between 21% and 27%.
Japan‘s economy shrank 2.1% in Q3, falling for the first time in three quarters and marking the worst result since Q1 2022. The contraction was caused by flat private consumption, cooling exports growth and falling fixed investments. The country suffers from steady inflation and wages falling in real terms. Prime Minister Fumio Kishida in November revealed an approximately USD113 billion economic stimulus package to cushion the impact from inflation. This package will also include tax cuts. The government will compile a supplementary budget for the current fiscal year of about USD87 billion to fund part of the spending. Consumer confidence from March exceeded previous year’s readings and improved in November for the second straight month to the highest level in three months. Synthetic fiber output in January to September shrank by 12% and cotton yarn production fell 18%. Passenger car manufacturing in the first three quarters jumped 19%, seatbelts rose by 6% and airbag modules by 20% while total tire output and tire cord fabrics both decreased by 9%. Total imports of textiles and apparel softened 6% to USD24 billion including 3% drop in clothing value and 12% contraction in non-apparel articles. The reduction in volume terms amounted to 6%; garment quantity declined by 3% and both manmade fiber chapters by 2%.
Korea, Asia’s fourth largest economy, was predicted to experience economic growth slowing to 1.2% in 2023 from 2.6% in 2022. Weak economic growth in key markets poses a risk for Korea’s manufacturing export sector. Exports only returned to growth for the first time since September 2022 in October, 9-month performance was 11% below last year. Signing of a memorandum of understanding in August to strengthen bilateral cooperation between Korea Federation of Textile Industries and the Vietnam Textile and Apparel Association may help to lift shipments of textile materials into Vietnam. Nylon and polyester output in January to September plummeted 28% with a slightly faster rate in destocking. Import value in the first nine months for textiles and apparel was 6% on the decline. Woven garment products were the only category with growth, up nearly 2% over previous year’s period. Cotton and both manmade fiber chapters were confronted with double-digit decreases.
GDP in the European Union slowed from 1.1% in Q1 to 0.4% in Q2 and 0.1% in Q3 compared with the same quarter of the previous year. Germany slides deeper into budget crisis and the victory for Dutch anti-EU Freedom Party could have reverberations across Europe. The 27-nation area is facing challenges from the longstanding slowdown in productivity growth, energy dependency, necessity of the green transition and technological change. Oil and natural gas are the two largest energy sources. EU’s energy demand in 2021 was met by 92% imports of oil and petroleum products and natural gas demand was covered by 83% imports. Progress has been made in taming inflation to 3.6% in October, down from 11.5% a year earlier. However, wage pressure could translate into additional inflation pressure and harm competitiveness as just seen in the U.S. after the United Auto Workers (UAW) secured record wage hikes and benefits for union workers at the Detroit Three automakers. The 9-month textile and apparel imports fell 14% to USD95 billion including 12% drop in apparel sourcing at USD69 billion. This translates into 1.3 million tonnes lower import volume including 570,000 tonnes fewer clothing articles.
Türkiye, 19th largest economy with a GDP of about USD906 billion, has been losing economic momentum from the nearly 6% growth in 2022 amidst dubious monetary policies and two devastating earthquakes in February with direct losses estimated at USD34 billion. The central bank decided another sizable interest-rate increase in late November by 500 basis points to 40%. Inflation in Q3 steeply rose to 61.5% in September, marking an annual high. Economic confidence index in November worsened to the second-lowest level in 2023 and relative strength in consumer confidence during the first half clearly disappeared. Quarter-on-quarter declines in the industrial production index of textile manufacturing occurred since Q1 2022 with the only exception in Q2 2023 before shrinking again in Q3 by 3.4%. Textile and apparel import value plummeted 20% to below USD10 billion. Woven garment imports skyrocketed 37% and knitwear surged 22%. Sourcing value for articles from the cotton chapter contracted 42% and from the both manmade fiber chapters by 27%
High inflation, rising interest rates and weakening consumer demand are weighing on economic growth in the UK. However, economy may experience a marginal expansion other than the prediction from late last year indicating a recession. The growth outlook for 2024 and 2025 was significantly slashed and households’ real disposable income is expected to remain lower than its pre-pandemic level. Nevertheless, consumers have turned more optimistic in November as the confidence index was stronger than anticipated after recovering from a sharp fall in October. Clothing accounts for almost three quarters of the total import value that declined 12% to USD21 billion. A sharper drop at 14% was recognizable in cotton and both manmade fiber chapters which seems to be a sign of eased domestic processing.
The joint 9-month import value dropped 15% to USD272 billion, equal to a shortfall of USD48 billion. To extent the number of countries by major Asian manufacturing nations does not arrive at a different conclusion. The cumulative import value from nine Asian industries – Cambodia, China, India, Indonesia, Pakistan, Sri Lanka, Taiwan, Thailand and Vietnam – declined at almost the same pace and would enlarge the overall shortfall to USD60 billion.
A look into the three largest apparel importing markets – EU, Japan and U.S. – comes to the conclusion that sourcing from the U.S. tumbled 23% to USD61 billion and fell 25% in quantity terms. It does not necessarily mean a corresponding shrinkage of the market size. National Council of Textile Organizations (NCTO) in October revealed that more than 1 billion de minimis shipments entered the U.S. in 2023 versus 150 million packages in 2016. Under the rule, shipments from abroad valued at USD800 or less enter the country duty free and virtually uninspected. Companies such as Shein, Temu, Amazon and others have successfully taken advantage of this loophole to boost their sales to multi-billions of dollars.
Similar structural changes apply to EU and Japan. Foreign apparel shipments into EU fell 12% to USD69 billion and by 16% in volume terms, equal to a reduction by 570,000 tonnes to 2.9 million tonnes. Likewise, deliveries into Japan softened 3% to USD18 billion, up 4% in yen terms, and accounted for 699,000 tonnes (-3%).
The all-dominant question is when will market forces improve and return to the growth path we were used to prior to pandemic? Honestly, there still are a number of adverse frame conditions in place that will delay a recovery and most voices of the market are rather skeptical for next year.
Geopolitical tensions, high interest rates, inﬂation, shortage of workers, inventory and consumers cutting spending on non-essentials in favor of traveling, services and entertainment are expected to prevent a recovery for the time being. Moreover, uncertainty in economical and political respect never has been a driver for growth. In 2024, half the world will be heading to the polls and some 30 countries are to elect a president. Finally, textile machinery business traditionally has been anticipating cycles in both directions with a roughly six months leadtime in the upstream sector. Latest 9-month order intake figures rather confirm the gloomy outlook. Incoming orders at Oerlikon Polymer Processing Solutions division plummeted 40% and contracted even 59% at Rieter. We need to be well prepared to weather upcoming challenges from slow demand, inadequate utilization rates and ongoing margin pressure. Cash management will increasingly gain weight to avoid a series of insolvencies or mergers and acquisitions.