Apparel sector flags urgent policy window as 1Q exports fall 8%
Sri Lanka’s apparel industry yesterday warned of a narrowing policy window to stabilise the exports, after the shipments fell 8 percent in the first quarter (1Q26), with the rising energy costs, shifting US trade dynamics and looming European market risks threatening to deepen the slowdown, unless immediate action is taken.
The decline, which widened from 03 percent in January to 11 percent in both February and March, comes at a time when the sector is confronting a convergence of pressures, softening global demand, escalating geopolitical tensions and a sharp rise in domestic cost structures, raising concerns that the worst of the downturn may yet lie ahead.
Industry body Joint Apparel Association Forum (JAAF) cautioned that the late-February escalation of tensions in the Middle East is likely to feed through more visibly in the coming months, particularly through the energy prices and supply chain disruptions, compounding an already fragile operating environment.
At the centre of the immediate challenge is a steep cost escalation, with the fuel and electricity alone adding nearly US $ 3 million a month to the industry expenses, a burden that is increasingly squeezing margins, particularly for the smaller manufacturers operating on thin buffers.
The industry renewed calls for structural reforms in the energy sector, including unlocking open access and power wheeling to accelerate the shift towards renewable energy.
“This will ensure that we get the maximum growth in renewable energy, reducing our reliance on fossil fuels,” the JAAF said in a statement and went on to stress the urgency of the cost-side reforms.
Yet, beneath the headline contraction, the data also points to a more nuanced picture of resilience and opportunity across the key markets.
The United States, accounting for around 40 percent of Sri Lanka’s apparel exports, recorded a comparatively milder decline of just under 8 percent in the first quarter, signalling underlying demand stability even as the consumer conditions tighten amid inflation and higher fuel costs.
More critically, the recent trade developments in the US are creating a defined, time-bound opportunity for engagement. A temporary 10 percent duty, introduced under Section 122, provides a 150-day window for Sri Lanka to negotiate improved access, while the ongoing Section 301 investigations open a parallel avenue to demonstrate compliance strengths, particularly in the labour standards. In Europe, the sector’s second-largest market, the exports also declined by just under 8 percent in the first quarter, a performance seen as relatively stable, given the global conditions.
However, the longer-term outlook is increasingly tied to securing the continuation of the GSP+ trade concessions beyond 2027, with early engagement seen as critical to maintaining duty-free access. Beyond the traditional markets, the regional demand is showing a stronger momentum. Exports to India grew nearly 10 percent in the first quarter, highlighting the untapped potential, although the industry officials point to policy constraints such as the longstanding cap under the Indo-Sri Lanka Free Trade Agreement that continue to limit expansion. Taken together, the JAAF said the first quarter has brought clarity on what needs to be done next, setting out a focused set of priorities. “ T h e s e a r e n o t l o n g - te r m ambitions. They are immediate, actionable steps, with clear timelines and tangible impact,” the JAAF said. It also indicated a shift towards targeted policy engagement. Despite the current headwinds, the sector maintains that its fundamentals remain intact, supported by a skilled workforce, established buyer relationships and proximity to key markets.
