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Vietnam’s textile and garment industry facing difficulties

Vietnam’s textile and garment industry facing difficulties

Monday 05, 09 2022
Inflationary pressures, conflicts in Europe and tightening policies in China are affecting both input and output of Vietnam's textile and garment industry.

Decreasing demand from the US

In the first half of 2022, Vietnam's textile and garment exports reached USD 18.53 billion, which is an increase of 20.8% over the same period and a record level. This high growth is due to pent-up demand in developed countries after the pandemic and the recovery of domestic manufacturing activities.

Vietnam's textile and garment

Driven by consumer spending, in the first half of the year, the value and volume of US apparel imports from Vietnam increased 40% and 24% year-on-year, respectively.

However, import growth is slowing down due to weakening demand in the context of economic downturn. American consumers are increasingly concerned about their family's financial future and may limit their purchases of clothing products. From an increase of nearly 10% at the start of this year, monthly apparel import growth in the US slowed to just 2.6% in value and almost 0% in volume in June 2022.

In a recent report, the analyst team of Rong Viet Securities (VDSC) predicted that many US fashion brands would be more cautious in placing new orders in the second half of this year to control inventory and prevent a glut in view of the unpredictable outlook for the US economy in the medium term.

According to Vinatex, the US’ textile and garment import demand is likely to decrease by 7-10% in the second half of the year compared to the first six months. VDSC believes that the decrease in orders will be more obvious in 2023, putting pressure on the growth of export output of Vietnamese textile and garment enterprises.

Vinatex

Due to the dual effects of post-Covid-19 supply chain disruption and the Russia-Ukraine conflict, the price of yarn and cotton imported into Vietnam increased by an average of 10% year-on-year in the first 6 months of 2022.

This has put pressure on the profit margin of players in the industry as most companies recorded a decrease in gross margin in the first half of the year. VDSC expects that profit margins of companies, despite gradually recovering, cannot reach normal levels in 2023 due to the delayed recovery of raw material supply.

Challenges for the textile and garment industry in the near future

The first challenge may be the inflationary pressure in key export markets, especially the US, which leads to a decrease in the number of new orders. The second is the fact that supply disruptions can be prolonged, pushing up raw material prices.

Russia and Ukraine

The conflict between Russia and Ukraine has raised inflation concerns in many countries. In the US and Europe, high food prices will cause the purchasing power of consumer goods, including textiles, to decrease significantly, affecting orders in the third and fourth quarters. Besides, the source of raw materials of Vietnam's textile and garment is still dependent on China. The "Zero Covid" policy and energy shortage in China are limiting the supply of textile materials, causing the price of input materials to escalate and putting pressure on the profit margins of Vietnamese textile companies.

However, in the next 3-5 years, it is expected that the textile and garment industry will gradually regain its inherent growth momentum, thanks to favorable factors from the economic recovery of importing countries, the shift of orders from China to Vietnam, the advantages from trade agreements and the improvement of production value chains. Therefore, the immediate difficulties will most likely be opportunities for investors who want to benefit from the bright future of the industry.

Source: VDSC, theleader

Compiled by VietnamCredit

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