War, US inflation impact: Export demand from big partners may taper off

After a rebound in external demand during the last one year, exporters are now apprehensive about moderation in the growth of outbound shipments for the next two-three months.

Demand for items, such as steel, apparels, leather, iron ore has been lukewarm from some of India’s largest export partners, such as the United States (US), European Union (EU).

“Flow of order has been impacted for the next two-three months due to high inventory. Unless the inventory is exhausted, getting sizable orders is a little challenging,” an industry official said, citing anonymity.

“Orders have not completely dried up, they are getting moderated. For instance, earlier we were getting orders for 600 units, which is coming down to 400-450 units,” the official explained.

The official quoted above further said it was too early to conclude if the trend will continue for the entire fiscal year, as demand is likely to pick up if a ceasefire is declared in the Ukraine war. “Therefore, the moderation could be temporary,” the official said.

The main trigger for a lukewarm demand in the US and Europe has been high inflation-driven surging energy and food costs due to the ongoing conflict between Russia and Ukraine. High inflation not only impacts the purchasing power, but, analysts fear, that the US could be slipping into a recession. The US is India’s largest export partner.
 

In April, the World Trade Organisation (WTO) had lowered its global trade forecast to 3 per cent in 2022 from its previous forecast of 4.7 per cent, due to the ongoing conflict between Russia and Ukraine and Covid-19-induced lockdowns in China. The global trade body had said the prospects for the global economy have darkened since the outbreak of war in Ukraine.

Apparel Export Promotion Council (AEPC) Chairman Narendra Goenka said a slowdown in the US and the EU is expected to soften the demand for apparels. “Orders are not as much as expected. We expect a moderation during the second half of the year (October-March). We are hoping for the situation to get better after that,” Goenka said.

Goenka further said apparel exporters are trying to make up for the shortfall in orders from the US and the EU by focusing on regions such as Latin America and countries such as Australia and the United Arab Emirates (UAE) as India recently signed trade agreements with the two nations.

India was able to surpass the $400-billion export target in the 2021-22 financial year. However, government officials said it may take some more time to fix the current financial year’s target as the geopolitical tensions have caused uncertainty among various sectors.