What's happening with Bangladesh's exports?
Some charts and conjectures about recent weakness in exports
For all the discussion about the Bangladesh’s recent economic woes, the declining exports has not received much attention. However, exports have been weak for a while now, with possibly significant consequences for the broader economy. This post is a preliminary investigation into the issue.
Exports declined on a year-ended basis in seven months of 2023 as well as in the year to January 2024. Monthly exports data is volatile, not to mention the wild swings during the pandemic, and it is a standard practice to smooth the series. Chart 1 shows the through the year (or year-ended growth) in both the original and smooth (12 month moving average) series. It is clear that exports have been weak for nearly a year.
Chart 1 uses Bangladesh Bank data where exports receipts are reported in taka. Chart 2 uses the IMF Direction of Trade Statistics, which reports exports in US dollar and breaks it down by destination countries. It is clear that exports have been weak for many months now, and the weakness is to all destinations.
Since most of Bangladesh’s exports are readymade garments, the reasons behind the exports weakness would likely be in that sector. If there is something global going on, this should show up in exports data of other countries. And Chart 3 suggests that this is indeed the case. Exports of RMG products have been declining in Vietnam, India and China, though it seems to be recovering in Cambodia.
That is, domestic factors — such as labour unrest, electricity shortage, fear of sanctions in 2023 — may have contributed to the weakness in Bangladeshi exports, but the more important story is probably global.
One possibility is that western consumers, in face of inflation and rising interest rates, maybe cutting back on their purchase of garments. Another possibility is that there is something structural going on in the global garments supply chain — such as the advent of online shopping at the expense of retail outlets. Production could be moving to Cambodia and other countries, and away from Bangladesh, Vietnam, China and India. Of course, these and other factors may be linked.
This needs to be explored in much more depth. For now, however, one solace is that both the World Bank and the IMF are projecting a recovery in real (volumes) exports in the medium-term (Chart 4) — that is, their current analysis is not one of structural shifts in the industry.
Regardless of the underlying cause, the exports weakness must have had flow on effects. Given the popular fascination with the stock of foreign reserves, it might be tempting calculate what declining exports mean for the balance of payments. However, such mechanical calculations actually miss the more significant macroeconomic linkages. At the very least, the economy has been hit with a negative exports shock in recent months.
The exports decline is probably related to the slowdown in industrial production (Chart 5). Meanwhile, the RMG sector is likely facing a squeeze on its profits even as the workers’ are reeling from cost of living pressures and have been agitating for higher wages. The income loss could flow through to weakening household consumption, dragging GDP growth down even further (it has already been slowing in the second half of 2023).
I am indebted to Zia Hasan and others for discussion.
Further reading
Desh Garments – A pioneer’s gift to his country
Vidiya Amrit Khan, 12 Mar 2015
Global firms are eyeing Asian alternatives to Chinese manufacturing
The Economist, 20 February 2023
Will new trade policies leave the developing world behind?
Dani Rodrik, 10 April 2023
Huileng Tan, 23 April 2023
Global Economy Approaches Soft Landing, but Risks Remain
Pierre-Olivier Gourinchas, January 30, 2024
The submergence of emerging markets
Andrés Velasco, 6 March 2024
Md Mohiuddin Rubel, 13 March 2024
প্রযুক্তিগত সক্ষমতা তৈরি না হলে প্রতিযোগিতায় টেকা কঠিন হবে
রাশেদ আল মাহমুদ তিতুমীর, 20 March 2024
The weakest links in the global economy are on the mend
Ruchir Sharma, 25 March 2024
Asia's Growth and Inflation Outlook Improves, but Risks Remain
Krishna Srinivasan, April 29, 2024
We risk a lost decade for the world’s poor
Martin Wolf, 1 May 2024
বদরুল আলম, 15 May 2024
I will be moderating a discussion on ‘Challenges of sustainable growth, development and democracy in Bangladesh’ at 6pm Tuesday 4 June BDT.
Neighbouring India seems to be having an export boom. My assumption is that the pandemic era work from home trends unlocked more services export opportunities for Indian firms. Their export potential was not impacted by the post pandemic global supply chain problems and the rise in global energy costs. Plus India's major export market which is the United States is still doing very well.
Perhaps this is just regression to the mean. There was a massive post pandemic boom because of revenge spending as the media called it. Now the savings have been spent and the demand is returning to normal. It would be better to look at five year averages and Bangladesh's overall market share in the RMG sector as well as value added.