As the wave of factory closures continues to impact industrial sectors across the globe, two prominent economists have raised alarms about the long-term economic consequences, warning that the trend could exacerbate financial instability and deepen inequality.
In an interview with The Daily Industry, SM Mizanur Rahman, Secretary General of Bangladesh Jubo Economist Forum emphasized that the rapid closures of factories-especially in manufacturing hubs-are creating a perfect storm of economic vulnerabilities. “What we’re witnessing is not just a temporary disruption; this could signal a structural shift in the global economy that might worsen unemployment rates and stifle growth in key sectors,” said Rahman.
A combination of factors is driving the closure trend, including rising operational costs, automation replacing human labor, and shifting supply chains following geopolitical tensions. Sanchez pointed out that many countries are struggling with the balance between technological innovation and the displacement of workers who traditionally relied on factory jobs. “In some regions, entire communities are becoming economically hollowed out,” she said. “It’s crucial for policymakers to ensure that displaced workers are given the skills and support to transition to new industries.”
Dr Khondaker Golam Moazzem, prominent industrial economist said, “Factory closures are not just an economic risk-they’re a political and social risk. The loss of these jobs could destabilize local economies, leading to increased political dissatisfaction, which is already being seen in certain industrial areas.”
“The closures don’t just hurt the workers; they impact families, social services, and even local governments that depend on tax revenue from these industries,” he explained. “This could create a feedback loop of stagnation that undermines the economic recovery we’ve been seeing since the pandemic.”
Both economists highlighted the need for comprehensive strategies that go beyond short-term stimulus measures. “Governments must invest in the retraining of workers, infrastructure development, and creating a business environment conducive to innovation that also considers social equity,” he concluded.
While some experts argue that technological advancements will eventually lead to higher productivity and new jobs, the immediate impact of widespread factory closures is far-reaching, with potential long-term repercussions on global economies. Analysts suggest that without a clear strategy to address these disruptions, the global economy could face a prolonged period of stagnation, inequality, and regional disparities.
Bangladesh is facing an alarming wave of factory closures, with more than 100 ready-made garment (RMG) factories and 10 textile mills shutting down in the past six months. Industries such as cement, steel, and paper are also reeling, with 83 companies ceasing operations between July and September last year.
The closures are being attributed to a mix of factors, including political instability, rising interest rates, market volatility, insufficient raw materials due to restricted issuance of letters of credit (LC), worker dissatisfaction, and reduced production capacity.
The economic implications are severe. Analysts warn that the factory shutdowns are stalling investment, with entrepreneurs hesitant to reinvest amidst the turmoil. Credit growth in the private sector has slumped to a 42-month low, signaling a sharp decline in business confidence.
Data from Bangladesh Bank reveals that private sector credit growth fell to 7.66% in November 2024, down from 8.30% in October. This is significantly below the central bank’s target of 9.80% for the first half of the 2024-25 fiscal year. The downturn is linked to a contractionary monetary policy, high interest rates, and an overall slowdown in economic activity.
The situation is exacerbated by a drop in imports of capital equipment, reflecting the lack of new industrial projects. This stagnation not only threatens employment but also reduces tax revenue, posing long-term risks to the economy.
Keya Group recently announced the permanent closure of four factories on January 2, adding to the wave of shutdowns that began following political changes on August 5. In mid-December, 24 factories from two major groups also closed their doors, highlighting the escalating crisis.
Entrepreneurs point to a lack of raw materials and rising costs as significant challenges. Worker dissatisfaction has further compounded the issue, leading to decreased productivity and unviable operations.
Economic analysts are urging the government to address the root causes of the crisis. “The continued closures are a direct threat to employment and economic stability,” one expert noted. “Without immediate policy interventions to stabilize interest rates, ensure the availability of raw materials, and restore business confidence, the situation will worsen.”
The current economic slowdown has also raised concerns about the broader impact on Bangladesh’s position as a global RMG exporter. As the nation grapples with political and economic uncertainty, the factory closures serve as a stark reminder of the urgent need for systemic reforms to safeguard the country’s economic future.
The private sector in Bangladesh is facing a sharp decline in credit growth, investment, and imports, as political and economic uncertainties take their toll on the country’s financial landscape.In May 2021, during the COVID-19 pandemic, private sector credit growth had fallen to 7.55%. Recent data shows a similar downward trend, with growth falling from 10.13% in July 2024 to 9.86% in August, the month of the government’s fall. By September, credit growth hit a three-year low of 9.20%, declining further to 8.30% in October.
A senior official at a private commercial bank attributed the slowdown to high interest rates and reduced demand for new loans. Interest rates on loans have risen to 14-15%, discouraging businesses from seeking term loans and trade financing.”The ongoing uncertainty and elevated interest rates have suppressed demand for new loans,” the official said. “Additionally, imports remain low, and businessmen are holding back investments due to financial risks.”
Data from Bangladesh Bank and the Bangladesh Bureau of Statistics reveal a significant drop in imports of capital equipment, which fell by 21.90% during the first five months of the 2024-25 fiscal year. Imports stood at $860 million from July to November 2024, down from $1.111 billion in the same period of the previous fiscal year.
Foreign direct investment (FDI) also dropped by 8.80% during the same period, falling from $1.61 billion in 2023-24 to $1.47 billion in the current fiscal year.
The economic slowdown has led to an increase in unemployment. As of June 2024, the number of unemployed people rose to 2.64 million, up from 2.5 million in June 2023.
According to the bankers, banks have adopted a conservative lending approach to mitigate risks. “Most banks are ensuring proper collateral before approving loans, given the sluggish financial conditions,” he said.Actual imports through LC settlements also decreased by 0.83% to $27.94 billion from $28.17 billion in the same period last year.
Experts stress the need for political stability, uninterrupted power supply, and financial policy reforms to revive economic activity. “The uncertainty in the business environment is discouraging investments and affecting employment,” said an industry analyst.
However, the government faces an urgent need to restore confidence among investors and businesses to reverse the downward trend and prevent further economic stagnation.
