Clothing and textile firms in Asia will need to wait for an improvement in the global economy before they see signs of a sustained recovery, according to a new regional economic outlook report published this month by the International Monetary Fund (IMF).

The report notes that any sign of an upturn is dependent on a revival in exports, given Asian economies' specialisation on advanced manufacturing and increasing financial ties with the rest of the world.

While 'Global Crisis: The Asian Context' addresses industrial recovery in general, it also notes that plunging retail sales in the US are leading to a reduction of garment export orders from countries such as Bangladesh and Cambodia, and lower profit margins through aggressive price reductions in Bangladesh, Cambodia, Mongolia, and Sri Lanka.

It also looks at how the economic downturn is affecting China's corporate sector.

Particularly hard-hit are export-related sectors such as clothing and textiles where overcapacity has built up in recent years and firms have been forced to adjust by running down inventories, cutting prices, and laying off workers.

The 2009 outlook for China's corporate sector is difficult to predict, the IMF says, with GDP growth set to slow to 6.5% and output expected to decline in key partner countries.

Manufacturing investment could weaken if inventories continue to be run down and falling profits drive down retained earnings.

Corporate weakness could intensify further if significant overcapacity emerges in certain industries or global demand falters further or protectionist barriers emerge.

Defaults on informal lending, through inter-enterprise credit and loans to customers, could be an additional source of risk.

The report believes the recent fiscal stimulus and other policy measures should mitigate the negative impacts, particularly if they come alongside a step-up in reforms of key social services that would strengthen the basis for private consumption and strong medium-term growth.

However, a deeper and more protracted slowdown would dramatically increase
bankruptcies in the textile industry.
 
Click here to view the May 2009 Asia and Pacific Regional Economic Outlook.