China Textile Industry Economic Research Institute Interprets The Macro Economic Environment Of The Industry

In the first half of 2022, the global economy was hit by multiple risk factors, such as repeated epidemic situation, escalation of Russia and Ukraine, tightening of financial environment and withdrawal of support policies of major economies. The recovery process slowed down sharply, inflation pressure continued to rise, stagflation risk continued to accumulate, and consumer confidence was obviously insufficient. In June, J.P. Morgan's Global Manufacturing Purchasing Managers Index (PMI) was 52.2, down 0.1 percentage point from May and at the lowest point in nearly 22 months. Among them, the index of new export orders was only 49.5, indicating that demand continued to shrink. The OECD consumer confidence index (excluding the euro zone) in May was 97.4, falling to a new low in nearly 40 months, and has been in the contraction range for 27 consecutive months. The improvement momentum of international trade is still weak. The barometer index of Global trade in goods in the second quarter of WTO was 99, up 0.3 percentage points compared with the first quarter, but the contraction trend below the critical point since the fourth quarter of 2021 has not been reversed. The world has fallen into the most serious inflation situation in 40 years. The CPI of developed economies generally increased by more than 8%. The IMF primary product price index (2016 = 100) was 226.1, with a year-on-year increase of nearly 50%.

Figure 1: trends of major global macroeconomic indicators

Data sources: IHS Markit, WTO, OECD, IMF

Since the second quarter, the downward pressure on China's macro-economic operation has increased due to factors beyond expectations, such as the complex and severe international environment and the impact of domestic epidemic situation, and a number of economic operation indicators have weakened significantly. Statistics show that from January to may, the total retail sales of consumer goods decreased by 1.5% year-on-year, the amount of fixed assets investment (excluding farmers) increased by 6.2%, the industrial added value of Enterprises above designated size increased by 3.3%, and the total profit increased by 1%. The growth rate slowed down by 1.3, 0.6, 0.7 and 2.5 percentage points compared with January to April. Driven by the gradual breakthrough of logistics congestion, early order delivery and stable foreign trade policy, China's total export of goods (in US dollar) increased by 13.5% year-on-year from January to may, 1% higher than that from January to April. Since the middle and late May, the resumption of work and production and the smooth logistics have been continuously promoted. The macroeconomic recovery momentum has begun, driving the prosperity level of the manufacturing industry to return to the expansion range. In June, the PMI of China's manufacturing industry was 50.2.

Figure 2: cumulative year-on-year growth rate of major indicators of China's national economy

Source: National Bureau of statistics, China Customs

Under the situation of frequent outbreaks of epidemic and the arrival of sales off-season, the textile industry has entered the bottoming range. Except for the export which achieved a faster than expected growth under the support of centralized delivery of orders in the early stage, the growth rate of other economic operation indicators showed a slowing trend, and the decline rate of domestic retail sales and enterprise profits continued to expand. Since June, textile enterprises, industrial clusters and specialized trading markets have steadily resumed their work and market. However, due to weak demand and insufficient orders, the capacity utilization rate has generally decreased compared with the same period of last year, and the dilemma of low profit and high inventory has not been substantially improved. Commodity prices began to decline after the US dollar interest rate hike, and the prices of finished products in the textile industry entered the downward channel, increasing the pressure on enterprises' inventory losses.

In the second half of this year, China's textile consumption policy is expected to maintain a long-term momentum of economic recovery. However, with the implementation of the policy of scientific prevention and control of the epidemic situation, China's textile consumption is expected to maintain a long-term momentum, and it is expected that China's textile consumption will gradually recover in the second half of this year, In the textile industry, the demand growth of products with improved consumption attributes is relatively limited, and the domestic sales growth rate is under pressure. The industry export faces the risk factors such as high inflation restraining consumer demand and the United States restricting Xinjiang product import, which makes it more difficult to maintain the current rapid growth rate. The overall cost pressure of enterprises is still relatively prominent. If the downstream demand can warm up in time and form a support for the price of end products, the operating pressure of textile enterprises can be gradually reduced. Textile enterprises should continue to pay attention to the market trends at home and abroad, the trend of raw material prices and the changes of trade environment, optimize production and operation plans, expand multiple sales channels, and improve the level of cost management and risk prevention and control awareness.