Centre for Trade Facilitation and Research in Textiles

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Centre for Trade Facilitation and Research in Textiles Textile Economic Intelligence (WEEK ENDING 25-08-2018) NEWS HIGHLIGHTS: Rupee might stabilise at 68-69 a dollar: Garg India's current account

1 Centre for Trade Facilitation and Research in Textiles Textile Economic Intelligence (WEEK ENDING ) NEWS HIGHLIGHTS: Rupee might stabilise at a dollar: Garg India's current account deficit to widen to 2.5% of GDP in FY19: Moody's, experts. SBI expects Q1 GDP growth at 7.7 per cent. Bangladesh imported 46% of cotton requirement from India. Japan s apparel import falls 7.97% in May 18. Turkish technical textiles exports up 20%. Textile exports drop 16% after rebate reduction. Chinese to Invest $500m in Cotton Farming. Turkey s textile exports grow 8%. Trade war: US, China slap 25% tariffs on $16 bn of each other's goods. EU clothing imports up in volumes, China surpasses Bangladesh in May. Arvind to invest Rs.5 billion every year. Textile exports turn around in July 2018.

2 GLOBAL ECONOMIC NEWS a) Euro appreciated against Dollar by 1.8% from per dollar on 20th August 18 to per dollar on 24th August 18 and Japanese Yen depreciated against dollar by 0.6% from per dollar on 20th August 18 to per dollar on 24th August 18. b) Brent Crude oil price index increased by 3.79% from 20th August 18 to 24th August 18. It increased from $72.87 per barrel on 20th August 18 to $75.63 per barrel on 24th August 18. c) Cot Look a Index increased by 0.05% from cents/pound on 20th August 18 to cents/pound on 24th August 18. d) The US stock market indicator Dow Jones went up 0.01% from on 20th August 18 to on 24th August 18. In Asian market, NIKKEI (Japanese market) went up by 1.81% from on 20th August 18 to on 24th August 18. SSE Composite went up by 1.15% from on 20th August 18 to on 24th August 18 and Hang sang went up by 0.27% from on 20th August 18 to on 24th August 18.

3 INDIAN ECONOMIC NEWS EXCHANGE RATE: The Rupee remain constant Rs 69.84/$ on 20th August 18 to 24th August 18. FINANCIAL MARKET TRENDS: The Sensex came down by 26.7 points or 0.07% from on 20th August 18 to on 24th August 18. The Nifty went up by points 5.35 or 0.05% from on 20th August 18 to on 24th August 18. CHANGE IN FOREIGN EXCHANGE RESERVES: India s Foreign exchange reserves decreased by $0.03 bn. To reach $ On 24th August 18 from $ bn. On 17 th August 18. Rupee might stabilise at a dollar: Garg The rupee is already Asia s worst performing currency and had touched an all-time low of per US dollar. According to Economic Affairs Secretary, the current turmoil in Turkey, triggered by U.S. sanctions, had not affected the perception of India. The flow of foreign portfolio investments (FPI) had not altered either and there had been no outflow in July. During the first three months, there had been outflow of capital and in the last year the total outflow was $ 20 billion. If oil prices do not rise further, the chances of the rupee stabilising at level is more. When asked how the rupee will be affected if China devalued its currency, he said that for the first time in the last 20 years, the Chinese economy had experienced current account deficit (CAD). Now China s exports and imports are altering fundamentally. So far, the depreciation of the Chinese yuan was not so high. Even if the Chinese currency is devalued, India will not be affected as long as the depreciation of all currencies vis-a-vis the dollar was similar. There would be no problem as terms-of-trade would not change. Owing to high oil prices, India s CAD had risen to 1.9 per cent for which the rupee was depreciating. This called for a need for higher capital inflows. India's current account deficit to widen to 2.5% of GDP in FY19: Moody's, experts India's current account deficit (CAD) will widen to 2.5 per cent of the GDP in the current fiscal due to higher oil prices that has been accentuated by rupee depreciation. Rupee last week dropped to a record low of to a US dollar as political turmoil in Turkey and concerns about China's economic health continued to support safe-haven assets and weighed on emerging market currencies. Vice President - Senior Analyst, Moody's Investors Service said while the weaker rupee will benefit exports at the margins, it is unlikely to reverse the trade deficit, which hit a five year high of USD billion in July. APAC Chief Economist said the significant depreciation of the rupee against the US dollar since the beginning of 2018 reflects a number of factors. Principal Economist, India Ratings and Research, said the rupee depreciation will have both positive and negative impact on the economy. On the negative side it will increase the oil import bill leading to higher current account deficit. Also, costly oil import would seep into the economy

4 via higher inflation, make infra and other projects, which have a large import content, expensive and will even make critical imported defence items more expensive. On the positive side, as an overvalued rupee was hurting export competitiveness, it will improve export competitiveness of Indian goods and services. Also, it will improve the top line/bottom line of the companies especially export oriented IT/IT services companies. APAC Chief Economist said a further widening of the CAD is expected in to around 2.4 per cent of GDP, due to a further increase in the oil import bill and the impact of rupee depreciation on import costs. Moody's puts India growth in 2018, 2019 at 7.5%. The Indian economy is largely resilient to external pressures and is expected to grow around 7.5% in 2018 and 2019, Moody's Investors Service said. In its Global Macro Outlook for , Moody s said growth is supported by strong urban and rural demand and improved industrial activity, pointing to the strong PMI and the index of 8 core industries. The Reserve Bank of India (RBI) raised the benchmark policy rate by 25 basis points for the second successive increase. Retail inflation in India has risen as per our expectations since mid- 2017, but remains stable around 5%. But core inflation has moved up in recent month to 6.2%, Moody s report said. SBI expects Q1 GDP growth at 7.7 per cent According to report Ecowrap, The country s GDP is expected to grow by 7.7 per cent in the April- June quarter on the back of pick up in leading indicators like cement production, sale of vehicles and bank credit, a report by SBI said. SBI has based its assessment on its Composite Leading Indicator (CLI), which takes into account 18 major macro-economic indicators. The CLI is signalling that the economic activity for Q1 FY19 has picked up substantially and the GVA (Gross Value Added) growth would be 7.6 per cent. Major indicators that driving GVA in Q1 FY19 are cement production, passenger traffic, sale of both commercial vehicle and passenger vehicles, non-food credit growth and aircraft movement among others. In April-June , subsidy expenditure to the tune of Rs 1, 16,820 crore has been frontloaded. They believe, by front loading subsidy amount in Q1 may have some impact on Q1 GDP figure and the gap between GDP and GVA might come down to some extent in Q1 as compared to remaining quarters in FY19. In fact, a trend analysis suggests that first quarter of fiscal may even witness GDP declining below GVA or staying marginally above GVA. As per the CSO, the GDP at prices in the fourth quarter (Q4) of financial year registered growth rate of 7.7 per cent as against 5.6 per cent, 6.3 per cent and 7 per cent respectively, in the first three quarters of the last fiscal.

5 GLOBAL TEXTILE NEWS Bangladesh imported 46% of cotton requirement from India Bangladesh imported 46 per cent of its requirement of cotton from India last year, according to the Indian High Commission in Dhaka. An eight-member delegation led by Bangladesh Cotton Association (BCA) president met Indian high commissioner and briefed him. The association works closely with Indian Cotton Association and Cotton Association of India as the country depends on import for raw cotton. Local cotton growers meet a mere 2 per cent of the demand leading to over $3 billion worth of imports. Bangladesh is the second largest exporter of readymade clothes after China. Japan s apparel import falls 7.97% in May 18 Japanese apparel import got a sharp fall in May this year as the country imported apparels worth US $ 1,996 million in the said month, while the import value in April was US $ 2,169 million. The fall recorded was 7.97 per cent on monthly basis. Knitted apparel import plunged significantly to US $ million as compared to US $ 1,015 million in April. On the other hand, woven clothing import too plummeted to US $ 1, million in May from US $ 1, million in April, this year. The downfall was noted mainly due to declining value of Japanese yen. Bangladesh and Vietnam continued their robust performance in their respective apparel exports to Japan during the first 5 months of the year. Bangladesh exported apparels worth US million marking per cent surge, while Vietnam s shipment to Japan stood at US $ 1, million with a surge of per cent on the yearly note. India witnessed a growth in overall apparel export shipment to Japan, valued at US $ million noting 9.54 per cent growth in the said period. However, the period did not turn out to be positive for knit clothing as exports of this segment fell 1.11 per cent. Turkish technical textiles exports up 20% Turkey s technical textile exports grew by 20.1% to US$ 898 million in the first half of The most exported product group from January to June was nonwovens. Exports of these products increased by 30.6% and were worth around US$ 294 million. This product group accounted for 32.7% of total technical textile exports. The second major product group in the first half of 2018 was packaging products, worth around US$ 182 million. Total technical textile exports account for 20.2%. The product group that recorded the biggest growth in the first half of the year was parachute fabrics. Exports of these products rose by 135.7%, compared to the same period last year. Germany became the most important export market. Technical textile exports made to Germany during this period were worth US$84 million, with an increase of 23.6%. The second most important country was Italy, with an export value of US$ 58 million and an increase of 15.8%. The third export market was the USA. This country imported US$ 58.5 million worth of technical textile products from Turkey in the first half of the year. The share of the USA was 6.5%. Exports worth US$ 480 million were realised in the 28 EU member countries, with an increase of 26.1%. With this exports figure, the share of the EU was 53.4%.

6 Textile exports drop 16% after rebate reduction Pakistan s textile exports dropped 16.1% to $1.002 billion in July 2018 compared to shipments recorded in June, which stood at $1.194 billion. On a year-on-year basis, textile exports in July did not show any improvement. In fact, they fell half a per cent as exports were slightly better at $1.007 billion in July The market had been expecting better performance from textile exporters following 18% rupee depreciation in the past nine months, but exports dropped significantly on a month-on-month basis and nominally on a year-on-year basis. Textile exports roughly make up 60% of Pakistan s total exports. All Pakistan Textile Mills Association (Aptma) Patron-in-Chief said the government had recently halved tax rebates that stood at 4-7% and therefore things turned unviable for textile producers. Pakistan had only adjusted its exchange rate by letting the rupee weaken, but it won t impact national exports. The rupee had been artificially stabilised at Rs105 per dollar for the past five years. Textile was a very competitive industry internationally and after 4-7% rebate the industry operated at 5% profitability and if the government reduces the rebate, then operating the industry will be unviable. However, the impact of rupee depreciation could not be gauged during summer as it was an offseason for the industry. The impact may be assessed and hopefully the textile group will show better exports in winter when consumption increases in the west due to cold weather and Christmas. Textile exports could be improved by improving localisation and quality of raw material as better brands import better quality cotton to meet their requirement. Pakistan s annual requirement stands at 15 million bales of cotton, but it has recently been producing just 10 to 11 million bales. Chinese to Invest $500m in Cotton Farming Minister of Food and Agriculture, has disclosed that one of the biggest cotton producers in China, Xing Jiang Shian Yon Group Company Limited, has decided to invest $500 million in cotton farming in the Northern Region. They indicated that the company intends to cultivate 20, ,000 hectares of cotton in the region. The minister said the company has already sent its technical team to the Northern Region to facilitate the investment in the region. The project will create many jobs for the youth in the Northern Region which will also attract people from the neighboring countries. They assured farmers in the Northern Region that the government would alleviate poverty in the region and the whole country at large by focusing on smallholder farmers who are the poorest in the country. The Northern Region has the best potential for food production in Ghana and they want to take full advantage and help mother Ghana. They expressed happiness about the effective usage of the 1 million bags of fertilizer allocated to farmers in the region. Turkey s textile exports grow 8% The total exports of textiles and raw materials in Turkey increased by 8% to US$ 5.3 billion in the first half of From January to June, the most important export market for Turkey in this sector was Italy. Exports to Italy rose by 5.8% in January-June 2018 to US$ 474 million. Germany was second. Exports of textiles and raw materials to Germany were US$ 440 million in the first half of the year, up by 8.3%, compared to the same period of the previous year. The third major export market was Bulgaria. Exports to Bulgaria declined by 13.7% to US$ 286 million, recording the biggest drop in the first half of the year. The most exported product in the first half of 2018 was woven fabrics. In this period, woven fabric exports increased by 8.3%, compared to the same period of 2017 and amounted to US$ 1.3 billion.

7 The second most exported product was yarn, which constitutes 18.1% of total textile exports in Turkey. Yarn exports were worth US$ 961 million in the January-June period of The third important product group is the knitted fabrics. In the first half, exports of knitted fabrics increased by 2.3% to US$ 801 million. The fourth most exported product group was fibres. Fibre exports increased by 16.9% in January - June 2018 to US$ 337 million. Turkey also continues its growth in technical textiles. Technical textile exports increased by 20.1% in the first half to US$ 898 million. Trade war: US, China slap 25% tariffs on $16 bn of each other's goods The US and China implemented 25 per cent tariffs on $16 billion worth of each other's goods on Thursday, ratcheting up the trade war between the world's two largest economies. The latest trade escalation came as officials from both the countries met for tariff negotiations in Washington. So far, both the countries have taxed each other's goods worth $100 billion in total. The US imposed 25 per cent tariffs on another $16 billion of Chinese goods just after midnight. The tax targeted 279 Chinese products, including chemical products, motorcycles, speedometers and antennas. Beijing responded immediately with 25 per cent tariffs on an equal amount of American goods such as chemical products, diesel fuel, medical instruments, cars and buses. EU clothing imports up in volumes, China surpasses Bangladesh in May European Union witnessed a surge in the clothing demand during the first 5 months of As a result, imports have gone up in the period by 6.62 per cent, while dut to low unit prices, the Union marked a significant drop in values by 2.10 per cent. The Union imported 1, mn kg apparels worth 32, mn in January to May 2018 period. Share of the Chinese exports plunged massively due to European buyers shift towards Bangladesh. Bangladesh exported apparels to the EU worth 6, mn marking 0.83 per cent surge on Y-o-Y basis. However, particularly in May month this year, Bangladesh ( 1.22 billion) was surpassed by China ( 1.31 billion) in apparel exports to the EU as the latter successfully restricted itself from repeating April month s performance where Bangladesh clocked 1.44 billion while China s exports was just 1.15 billion. Bangladesh noted over 15 per cent drop in May as compared to April this year which surely is not a good sign for the country. On the other hand, Turkey is impressively expanding its share in the European market due to its close proximity. Turkey s export to EU stood at 4, million in the mentioned period and the country noted 2.13 per cent growth on the yearly basis. Further, dismal performance of India in its apparel exports to the EU continued as till May this year, the country fell 3.58 per cent in value terms to clock 2, mn and marked a marginal growth of 0.49 per cent in volumes. India s failure to take due advantage of rupee depreciation of around 6 per cent against euro hurt the exports big time. Vietnam is on rise in its apparel exports to the 28-nations bloc, but in just volumes. Value of exports was disappointing as unit prices declined massively by per cent. Further, in the month of May this year, Vietnam just exported apparels to the EU worth US $ 211 million as compared to US $ 200 million in April 18. On M-o-M basis, the surge was noted by per cent. However, if we talk about performance on Y-o-Y basis, Vietnam fell by 2.60 per cent as the country exported apparels worth US $ million in May 17. However, growth perspectives for Vietnam in the EU market are bright due to upcoming FTA with the Union as well

8 as the probable graduation of Bangladesh from LDC to developing country which might snatch GSP benefit from the country shifting a major share of market towards Vietnam. INDIAN TEXTILE NEWS Spun Yarn Production of India: Spun Yarn Production (SSI & Non-SSI) (in Mn. Kgs. ) Cotton Blended 100% N.C. Total Apr' May' June' (Apr-June) (Apr-June) % Growth FY 18-19/17-18 The Spun yarn production of India has increased by 1.16% to million Kgs in (Apr18- June19) from (Apr17-June18) when it was million kgs. Arvind to invest Rs.5 billion every year Arvind is set to invest Rs.5 billion every year for the next five years to expand its textile business. The investments will be made from internal accruals. According to the company s executive director, Arvind s revenues are expected to increase to Rs.120 billion at the end of five years. At present, revenues stand at Rs.60 billion. Textile exports turn around in July 2018 However, he added that the impact of rupee depreciation could not be gauged during summer as it was an off-season for the industry. The impact may be assessed and hopefully the textile group will show better exports in winter when consumption increases in the west due to cold weather and Christmas. Sheikh said textile exports could be improved by improving localisation and quality of raw material as better brands import better quality cotton to meet their requirement. Pakistan s annual requirement stands at 15 million bales of cotton, but it has recently been producing just 10 to 11 million bales.

Centre for Trade Facilitation and Research in Textiles

Centre for Trade Facilitation and Research in Textiles Textile Economic Intelligence (WEEK ENDING 11-08-2018) NEWS HIGHLIGHTS: IMF urges India to accelerate pace of fiscal consolidation. India's average