Brazil’s textiles and apparel industry hopes an export rebound will help it offset a domestic downturn and recover its fortunes, even as Latin America’s largest economy is set to shrink 3.5 percent in 2016.
“We could grow 1 to 2 percent this year,” said Fernando Pimentel, president of top textiles trade lobby Abit. “Garment imports are going to decrease 25 percent and we expect exports to grow 10 percent.”
Pimentel conceded the industry contracted 10 percent last year as Brazil’s economy fell a worse-than-expected 3.8 percent, according to the International Monetary Fund’s latest figures. Gross domestic product is set to fall 3.5 percent for this year, with the Olympics having a limited effect on lifting the economy from its worst recession since 1930, the body predicted.
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Plunging oil and commodity prices, coupled with a political corruption crisis, have thrown Brazil’s economy into the abyss, with retail sales expected to fall sharply this year.
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Yet Pimentel insisted things are not so bad for apparel manufacturers. This is partly because the slumping Brazilian currency the real fueled an export surge in the fourth quarter of 2015, helping offset domestic losses trigged by anemic consumption.
“Exports recovered 10 to 15 percent because our exchange rate fell against other Latin American currencies,” prompting buyers in Argentina, Paraguay, Colombia and Mexico to snap up Brazilian denim and knitwear products, Pimentel said.
He expects the real to fall more this year, further boosting exports and encouraging Brazilian brands to enter new markets.
Already a string of Brazilian firms are set to travel to Première Vision in Paris on Tuesday, partly because Première Vision São Paulo was recently canceled due to “management problems” and an unfeasible new schedule for Brazilian exhibitors, Pimentel said.
Beyond Paris, companies are rushing to market their products in Latin America, the U.S., Asia and Europe, according to Pimentel.
He said neighboring Colombia, which with Brazil is negotiating a free trade agreement that could close this year, is a new key destination, with 22 companies attending the latest Colombiatex regional textiles show in Medellin versus 12 last year.
Brazilian textile and apparel-makers are so keen to do business with Latin American buyers that over a dozen firms waited to attend Colombiatex but had to stay home due to a lack of space, according to Pimentel.
He expects the bulk of this year’s exports will go to Latin America, where Brazil sends 65 percent of its garments. Argentine purchases should also rise sharply as the economy swings into high gear following President Mauricio Macri’s sweeping reforms. The remaining goods should go to Paraguay, Colombia and Mexico while U.S. sales should also rise, Pimentel predicted.
The weakening real will fuel import substitution and boost local clothing production of knits and wovens, helping domestic brands increase sales against international rivals and offsetting volume declines, Pimentel said, adding apparel makers’ domestic turnover could gain slightly.
To help fend off losses from the prolonged downturn, Abit is devising a new competitive strategy, due by March. Pimentel would not provide details but said the scheme aims to boost manufacturing innovation and technology in line with the new so-called “Industry 4.0” practices, among other things.
Analysts said Pimentel could be on the money — if exports meet his forecasts and consumption does not deteriorate more than expected.
“Brazilian brands are going to reduce imports and produce more in Brazil. Local sales will fall but production will increase,” said one retail analyst in São Paulo who covers apparel giant Alpargatas who requested anonymity. Still, the analyst forecast retail sales will fall 7.1 percent compared with a 4.5 percent decline last year. On a real basis (adjusting for 7 percent forecast inflation), they will decline 13 percent, slightly less than last year’s 15 percent fall.
Another Alpargatas analyst was more optimistic, saying apparel sales will be flat and could decline 4 to 5 percent on a real basis.
“We agree with Abit,” he said. “Last year was super tough. We can’t do worse this year. Inflation will be 7 percent compared to 10 percent in 2015 and apparel exports will increase.”