General economic situation and industry development

General economic situation

Fiscal year 2022 was overall characterized by a high level of macroeconomic and geopolitical uncertainty. While the global recovery from the COVID-19 pandemic continued in most geographies, persisting bottlenecks in global supply chains, surging commodity prices on the back of the war in Ukraine, as well as an economic slowdown in China amid long-lasting pandemic-related restrictions weighed on the global economy. In addition, energy prices increased significantly during the course of 2022, thus leading to rising global inflation. The latter was initially triggered by a strong recovery in consumer spending post the global lockdowns. On top of that, the strong appreciation of the U.S. dollar against most other currencies added to inflation outside of the U.S. and put pressure on international financial markets, especially for some emerging countries. With both the U.S. and Europe experiencing broad-based price increases in 2022, international policy makers were forced to start reducing money supply and increased interest rates to temper inflation.

Overall, after the strong rebound of economic growth in 2021, the ‘post-COVID’ economic recovery came to a sudden end during fiscal year 2022, as virtually all major economies had to experience significant disruptions. Consequently, in its latest report published in January 2023, the International Monetary Fund (IMF) expects global economic growth to have slowed to a level of 3.4% in 2022 (2021: 6.2%), with strong differences across regions and sectors.

According to IMF estimates, economic growth in the eurozone has slowed to 3.5% in 2022 (2021: 5.3%). The Russian invasion of Ukraine had severe economic repercussions, with higher energy prices, weaker consumer confidence, and slower momentum in manufacturing resulting from persistent supply chain disruptions and rising input costs. The impact was particularly severe in the two major economies of Germany and France, which recorded only modest growth of 1.9% and 2.6%, respectively (2021: 2.6% and 6.8%). Economic growth in the United Kingdom also slowed noticeably, totaling 4.1% in 2022 (2021: 7.6%), with high inflation reducing purchasing power and tighter monetary policy taking a toll on consumer spending and business investment.

According to the IMF, the U.S. economy grew by 2.0% in 2022 (2021: 5.9%). Declining real disposable income continued to depress overall consumer demand, while the sharp rise in interest rates took a noticeable toll on spending. Also in Latin America, the pace of economic growth slowed to 3.9% in 2022 (2021: 7.0%), as growth of important partner economies weakened and overall financial conditions tightened.

In China, COVID-19 outbreaks and corresponding lockdowns in multiple localities as part of the prevailing zero-COVID policy, as well as the worsening property market crisis, have held back economic activity throughout 2022. Consequently, according to IMF estimates, China’s growth totaled 3.0% for the full year (2021: 8.4%), the lowest annual growth in more than four decades. This is also slightly lower than in the Asia region (excluding Japan) as a whole, for which the IMF assumes growth of 4.3% (2021: 7.4%). With growth of 1.4% in 2022, the economy in Japan suffered from higher energy import prices as well as lower consumption as price inflation outpaced wage growth (2021: 2.1%).

Industry development

In the first half of fiscal year 2022, the global apparel industry continued its recovery from the COVID‑19 pandemic, which had already been visible throughout most of 2021, with development varying strongly across regions. While most industry players benefitted from robust consumer demand, in particular in the first half of 2022, conditions became more challenging in the second half. As the year progressed, ongoing shortages in materials and logistics, the impact of geopolitical tensions, and a further increase in production and freight costs resulted in a sharp increase in input costs. The latter led companies to increase prices for consumers at a time when consumer confidence in key markets has started to decline in the wake of rising global inflation.

According to a joint study by The Business of Fashion and management consultancy McKinsey & Company published in November 2022, the global apparel industry (excluding the luxury segment) recorded year-on-year revenue growth of 11% in the first half of 2022. In the second half, however, the industry is expected to have contracted between -7% and -5%, first and foremost reflecting the increase in macroeconomic headwinds and the related deterioration in global consumer sentiment both overshadowing company-specific dynamics.

In Europe, the apparel industry continued its strong recovery in the first half of the year, which had already begun in mid-2021. Growth was spurred by an overall robust local consumption and a strong rebound in domestic travel, while a return of international tourist flows – also fueled by the noticeable depreciation of the euro – provided further tailwind. Consequently, The Business of Fashion and McKinsey & Company estimate that industry sales (excluding the luxury segment) grew a strong 31% to 33% in the first half of 2022 (H1 2021: 11%), also reflecting long-lasting pandemic-related temporary store closures across key European markets in the prior-year period. In the second half of 2022, however, industry sales are expected to have contracted between ‑9% and -7% (H2 2021: +8%) as the severe economic repercussions of the war in Ukraine, especially the sharp rise in energy prices that fueled broad-based inflation, led to a decline in overall consumer confidence.

Also in the important U.S. market, industry growth slowed significantly over the course of 2022. With the apparel industry (excluding the luxury segment) having posted solid growth of between 7% and 9% in the first half of the year (H1 2021: 21%), growth rates fell to a level of only 1% to 3% in the second half of 2022 (H2 2021: 15%). While the U.S. was more insulated from the implications of the war in Ukraine and COVID-19 than Europe and China, respectively, high inflation and rising interest rates sparked worries about a potential recession, thus weighing on consumer sentiment. On top of that, the strong appreciation of the U.S. dollar against other major currencies led to a regional shift in consumption, mainly towards Europe.

In China, the global apparel industry had a rather difficult year, reflecting persistent COVID-19 outbreaks and corresponding health precautions, including long-lasting temporary store closures. In addition, also the ongoing real estate crisis took its toll on consumer spending. Consequently, according to The Business of Fashion and McKinsey & Company, the apparel industry (excluding the luxury segment) recorded revenue declines in a range of ‑7% to -5% in the first half of 2022 (H1 2021: +36%), before returning to modest growth of between 1% and 3% in the second half (H2 2021: 0%).