Politico-economic crisis, the war in Europe, and dampening demand seem to have an upper hand on the economy.
The crisis gets deeper with today’s resignation of Liz Truss, Prime Minister of the United Kingdom making her the shortest-serving Prime Minister ever in the United Kingdom.
The political and economic crisis in the U.K. will have ripple effects on the global economic situation. The 44 days of high drama in the United Kingdom are highlighting fragile economic and political order in certain parts of the world. With the recession expected around the corner, these unstable situations add pain to the global geo-political and economic situations.
Where is Britain heading now and hence the global order? This loaded question needs serious thinking.
In a discussion last week at Texas Tech University, Dr. Glenn Hubbard, who served as the Chair of the Economic Council of Advisers under President George W. Bush stated, “economy is going to witness substantial pain.” In my question on the end game for inflation, Dr. Hubbard stated, with the target to bring down the inflation to 2%, we must expect an economic slowdown. Recently, Bloomberg predicted the probability of recession to be 100 percent in the next 12 months.
Consumers have less to spend on non-essentials, with mortgage rates as high as 7% in the United States. The borrowing rate has increased sharply from 3% to 7% within a year, displaying the pains of inflation.
In June 2022, at the Textile Association (India) event in Coimbatore, I articulated the need for the global cotton-textile industry to consider both the supply and demand sides of the equation. This is what has come true, with the demand sliding, while we have a tight supply of commodities like cotton.
“Advance booking for yarn is down in this festive season,” stated Velmurugan Shanmugam, General Manager of Aruppukkottai, India-based Jayalakshmi Textiles. While domestic demand is there, the export market has slowed down adding Velmurugan Shanmugam. India’s yarn manufacturing is at a saturation level and needs about 40% of its cotton yarn production to be exported to avoid job losses in the sector.
Global politics is currently under the grip of economic woes and the war in Europe, as is evident from the high drama in the United Kingdom.
The textile sector needs good introspection and looks forward to opportunities beyond the commodity sector such as health care, making the production and products with a competitive advantage and enhancing its product basket.
By: Seshadri Ramkumar, Professor, Texas Tech University, USA