General economic situation and industry development

General economic situation

In fiscal year 2021, the general economic situation continued to be dominated by the implications of the COVID-19 pandemic. New waves of infection and renewed restrictions on public life, including widespread contact and international travel restrictions, had an overall dampening effect on global economic development. In addition, the consequences of the pandemic-related disruption of global supply chains weighed on economic development. Nevertheless, in 2021, the global economy recovered noticeably from the prior year’s economic downturn, driven by comprehensive stimulus programs in major economies, including the United States, China and the EU, progress in global vaccination campaigns, and a significant pick-up in global consumer sentiment after the lockdowns. Towards the end of the year, the spread of the Omicron virus variant and higher than expected inflation slowed the economic recovery to some extent.

Against this backdrop, the International Monetary Fund (IMF) expects the global economy to have grown by a total of 5.9% in 2021 (2020: −3.1%). The pace of economic recovery varies across countries and sectors, depending on the degree of pandemic-related disruption and the level of political support.

According to IMF estimates, the eurozone economy grew by 5.2% in 2021 (2020: −6.4%), making up for most of the economic decline recorded in the prior year. With growth of 6.7%, France performed particularly well, driven by robust local demand and an extensive economic stimulus program (2020: −8.0%). Germany’s economy developed softer as compared to the eurozone, mainly due to increasing supply shortages for intermediate products and raw materials, thereby closing 2021 with growth of 2.7% (2020: −4.6%). Great Britain also achieved robust growth of 7.2% (2020: −9.4%), supported by major liftings of pandemic-related restrictions towards mid-2021.

According to the IMF, the U.S. economy grew by 5.6% in 2021, thus returning to pre-pandemic levels (2020: −3.4%). Growth was driven by extensive monetary and fiscal policy measures, which led to strong demand in private consumption while also boosting corporate investments. However, persistent supply shortages dampened economic activity, particularly in the second half of the year. In light of ongoing robust demand, this drove inflation in the market. Also in Latin America, the economy recovered noticeably in 2021. According to the IMF, the regional growth totaled 6.8% in 2021 (2020: −6.9%).

In China, the economy already recovered noticeably in the first half of 2021 due to effective containment measures, substantial public investment and liquidity support provided by the Central Bank. However, in the further course of the year, the zero COVID strategy and related quarantine regulations led to supply chain disruptions and restrictions in energy supply. In addition, the real estate crisis intensified in the second half of the year, which had a negative impact on overall consumer sentiment. According to IMF estimates, China’s growth for the full year totaled 8.1% (2020: 2.3%), slightly above that of the Asia region (excluding Japan) as a whole, for which the IMF assumes growth of 7.2% (2020: −0.9%). With growth of 1.6% in 2021, the economy in Japan is recovering at a comparatively slower pace from the implications of the pandemic (2020: −4.5%).

Industry development

For the global apparel industry, fiscal year 2021 continued to be marked by the implications of the COVID-19 pandemic. In addition to regional lockdowns and related store closures, ongoing international travel restrictions weighed on industry development. Furthermore, global supply chain disruptions led to bottlenecks in transportation and logistics, as well as an increase in material and freight costs. Despite this volatile environment, the industry largely recovered from prior year’s losses during the course of 2021. While the impact of the pandemic was still noticeable at the beginning of the year, particularly in Europe, the industry’s recovery strongly accelerated from the second quarter onwards. As a result of the lifting of pandemic-related restrictions and strong progress in vaccination campaigns, global consumer sentiment picked up noticeable, led by Europe and the Americas. According to a joint study by The Business of Fashion and management consultancy McKinsey & Company published in November 2021, the global apparel industry (excluding the luxury segment) recorded a sales development in the range of −4% to +1% compared to 2019 (2020: −20%). This means that industry sales have largely returned to pre-pandemic levels only one year after the significant pandemic-related decline in revenues.

The pandemic has further accelerated global megatrends in the industry, particularly in the areas of casualization, digitalization and sustainability. In addition, companies with a strong online presence, short and efficient supply chains and a comparatively low dependence on tourism have performed relatively better. From a regional perspective, markets with a high vaccination rate and a largely open economy stood out in particular, as the industry benefited from significant improvements in consumer sentiment and strong growth in local demand.

In Europe, where the negative implications of the pandemic continued to be noticeable particularly in the first quarter, the lifting of lockdowns and related temporary store closures significantly supported business recovery from the second quarter onwards. In the second half of the year, progress in vaccination campaigns and the return of social events further accelerated industry growth. However, The Business of Fashion and McKinsey & Company expect industry sales (excluding the luxury segment) to be down 15% to 10% compared to 2019, thus only partly offsetting the prior year’s losses (2020: −20%).

In the important U.S. market, industry sales (excluding the luxury segment) returned to pre-pandemic levels, posting growth of 5% to 10% compared to 2019 (2020: −22%). In this context, very robust local demand was also supported by the comprehensive economic stimulus program. Overall, the recovery was driven by local consumers while business in major cities in particular suffered from the ongoing absence of international tourism.

In China, industry sales returned to growth already in the first half of the year, driven by strong local demand,. Due to international travel restrictions, private consumption was largely diverted to mainland China. In the second half of the year, however, renewed pandemic-related restrictions including temporary store closures weighed on consumer sentiment. Consequently, according to The Business of Fashion and McKinsey & Company, the apparel industry (excluding the luxury segment) recorded growth of −3% to +2% in China as compared to 2019 (2020: −7%).