Europe’s weakening currency is making garment purchases more expensive for European buyers and limiting the extent to which the garment sector recovers after experiencing heavy losses in jobs and profits last year, those in the industry say.
As worries over sovereign debt gripped Europe in the first quarter, the euro began a steady decline and was down yesterday about 11 percent year on year at 1.27 euro to the dollar.
“A devalued [euro] means importers have to pay more,” said Sung Mang, manager at the Winner Knitting Factory in Kandal province, which employs about 10,000 workers. “This could squeeze our profits.”
Worries over demand form European buyers come as garment prices have fallen by about 10 percent compared to the same time last year amid strong competition.
“Every day there are many competitors and we cannot get a high price,” Mr Mang said.
According to government data, garment exports to the European Union increased by 11 percent to $204.97 million in the first five months of the year, the latest period for which official figures are available. Garments exports to the US went up by 13.5 percent to $661 million.
Analysts say that the growth potential for exports to the EU goes beyond that of the US, as countries inside the 27-member bloc have duty-free access under a scheme known as Everything But Arms.
“When you’ve got buyers from Europe they pay in US dollars, but their sales are always in euros. So there is always an amount of risk there,” said Ken Loo, secretary-general for the Garment Manufacturers Association in Cambodia. “Given that the garment industry is an industry with such fine margins, any fluctuation is bound to have an effect.”
Still, Mr Loo said that enjoying duty-free access could allow European buyers to offset some of the losses caused by a weak euro.