Ukraine Russia: What are the repercussions of the war on the European and Italian fashion production sector? The numbers and concerns for the future.
The growing concern arising from the outbreak of the conflict between Russia and Ukraine and the worsening of prices in the energy sector are seriously jeopardizing the continuity of production for many companies in Europe and Italy. The fashion and textile sector is also suffering from this terrible crisis in the immediate future, moving towards growing uncertainty for the near future.
Since last summer, the entire European industrial sector has witnessed a dangerous increase in gas and electricity prices, not to mention that the Covid 19 effect of the last 2 years is still being felt.
According to Reuters, benchmark European gas prices at the Dutch TTF hub have risen 330% over the past year, while benchmark contracts for German and French energy have more than doubled. In addition to textile manufacturers, those who are pricing in even higher prices are brands and retail chains that are facing enormous challenges: both for those selling to Russia and for their supply chains.
"In 2021, the European Union exported €2.34 billion worth of clothing to Russia, or 7.60% of the total exports of the European sector. “Contrary to the image that Russia and its billionaires might convey, Russia does not weigh heavily on our luxury exports,” says Gildas Minvielle , director of the IFM Economic Observatory, who nevertheless points out that “the situation on the Russian market could weaken the Italian industry, which alone generates nearly a third of the country's clothing exports” . On the textile side, Russia captures 3.7% of European exports, with €860 million." (source: Fashionnetwork.com )
Furthermore, we have a growing concern about the contraction in consumption, which has already marked a significant decline since the end of February. The climate is anxiety-inducing and the frequent reference to the Third World War will certainly not be able to help a recovery in consumption at pre-Covid levels.
The business associations of the sectors of the Italian Fashion System and Assocalzaturifici, together with the trade unions , have drawn up a document to start an urgent meeting with the Minister of Labor, in which they identify two specific crisis situations where intervention is necessary:
- for producers who make heavy use of gas and electricity energy in their production phases;
- for companies exporting a significant part of finished products to Russia and neighboring countries.
They underline that in both cases, the ones who suffer the most are the SMEs , since the large companies are normally more diversified both in terms of the type of processing and the diversification of the outlet markets.
Let us remember that in the Italian energy mix, natural gas has a share of 42.5% and that it is one of the European countries most exposed to price increases and possible further embargo sanctions threatened against Russia.
To add to the dose of pessimism, Confesercenti has just drawn up a report that examines the two years of Covid and the worsening of the economic situation due to the Russia-Ukraine conflict:
"Two years after the start of the crisis triggered by Covid19 – the damage of which has yet to be recovered – a new emergency is affecting our economy. The effect of the run-up in energy, gas and fuel prices, exacerbated by the Ukrainian crisis, risks bringing the inflation rate to 8% as early as 2022: a level that has not been seen in Italy since the 1980s and which could cost us 26.1 billion euros this year in lower consumption and a reduction of 41.3 billion in the expected increase in gross domestic product." (Source: Confesercenti.it )
For the current year:
"GDP growth in 2022 would go from the forecasted +61.5 billion (+3.7% on 2021) to +20.2 billion (+1.2%), consumption growth from the initially forecasted +35.9 billion euros to just +9.8 billion. A slowdown that postpones the return to pre-covid levels to a date to be determined: GDP, at the end of this year, would still remain 52 billion below 2019 values, while the consumption gap would settle at -31.5 billion euros ." (Source: Confesercenti.it )
As for countermeasures, the EU is defining measures to reduce dependence on Russian gas (REPowerEU). While individual states will be able to set capped retail electricity prices and introduce temporary taxes on the extra profits of energy producers and sellers, in order to then finance emergency measures for users.
It certainly comes to mind that this humanitarian and economic crisis could be long-lasting and that the consequences could significantly impact the stability of both the most exposed SMEs and the shopkeepers and traders with shoulders "not broad enough" to be able to afford such significant price increases. In fact, the Confesercenti report underlines that only in the Covid period:
"The pandemic has cost nearly 325,000 independent workers their jobs in two years. Employee workers, on the other hand, grew fairly steadily from 2014 to 2020, when they fell by more than 300,000 units, to recover about 50% of the losses last year."
However, at least from the point of view of the EU's political intentions for the near future, these intentions, if materialized, could act as a driving force for a much more consistent and long-lasting economic and social recovery. The international community has firmly, without participating directly in the conflict for now, launched sanctions in a compact manner. It is hoped that Europe can immediately get in line with the new needs of a global market that has completely changed in its assets.
