The depreciation of the euro against the US dollar made EU imports markedly more expensive

The depreciation of the euro against the US dollar made EU imports markedly more expensive

The average price of EU textile and clothing imports jumped by 14.2% during the first four months of 2015 – and is set to continue to rise in 2015 and 2016, new research suggests.

The jump in the average import price during the four-month period resulted from a sharp 18.9% depreciation in the value of the euro against the US dollar and occurred despite a softening of raw material prices in the second half of 2014.

The sharp depreciation of the euro against the US dollar made EU imports markedly more expensive in euro terms. And importers, faced with having to pay substantially more euros for their textiles and clothing, responded by cutting the volume of their textile imports by 0.6% and their clothing imports by 3.7%.

These cuts may seem relatively small, but it is likely that the full impact of currency movements has yet to be felt as many of the orders fulfilled in the first four months of 2015 will have been placed before the euro depreciated.

In clothing alone, the average price of EU imports shot up by 17.8% during the first four months of 2015. Interestingly, among the EU's ten leading clothing supplying countries, the fastest price increases were seen in the case of imports from those which supplied clothing to the EU at the lowest average prices.

This suggests that suppliers in these countries had such tight margins that they were unable to absorb the effect of the depreciation of the euro against the US dollar and were therefore forced to pass on the increases in prices in euro terms to buyers.

In 2015 as a whole, the euro is forecast to depreciate against the US dollar by 21.3%. Furthermore, in 2016 it is expected to depreciate by a further 5.0% to its weakest level since 2002.

Textile and clothing import prices in euro terms could therefore continue to increase, even if they fall in US dollar terms. As a result, European buyers are expected to cut back on their purchases in 2015 and EU imports of textiles and clothing are expected to fall in volume terms.

If these predictions prove to be correct, the exporting of textiles and clothing to eurozone countries will become less profitable for non-EU suppliers who trade in US dollars – and in some cases exporting to the eurozone may even become unprofitable.

This could, in the absence of a major fall in raw material prices, force some suppliers to attempt to increase the prices of the goods they ship to the EU in order to retain their profitability. Inevitably, such increases would cause unit values to go up and this may cause importers to cut their import volumes further.

Alternatively, suppliers may choose to focus on other, more profitable markets – such as the US. In this case, the EU textile and clothing industry might enjoy some relief from the pressure of imports and this could provide EU firms with the opportunity of replacing imports with locally produced goods.

However, given the attrition which has taken place in the EU industry in recent years it is unlikely that the industry would have enough capacity to meet demand for such goods.

Consequently, the main benefits of any lessening of pressure from imports would go to nearby countries which trade in euros, have relatively low labour costs and have maintained substantial manufacturing capacities. The beneficiaries in such a scenario might include countries around the Mediterranean Rim, notably Turkey.

The report ‘Tougher times ahead for textile and clothing suppliers to Eurozone countries?’ appears in Issue No 175 of Textile Outlook International.