Scorching heat threatens a European economy teetering on the brink of the abyss

There is record inflation, made worse by Russia’s war in the Ukraine. A weak euro it is making it more expensive for companies to import necessary goods. Italy, the third largest economy in the bloc, is mired in a political crisis after the overthrow of the prime minister of the country.

But Brzeski also keeps a close eye Extreme weather. A summer of scorching heat and dryness, exacerbated by climate changeit is compounding business headaches across Europe, weighing on economic output at a time when everything counts.

Water levels along Germany’s Rhine River, which is crucial for transporting chemicals, coal and grain, are so low that shipping has been disrupted, threatening to rise further. scramble supply chains. Warm water temperatures in France are preventing some nuclear power plants from operating amid other maintenance issues. And in northern Italy, farmers are enduring the worst drought in 70 years, affecting production of crops ranging from soybeans to Parmesan cheese.

But the ECB’s ability to act could be limited as economic activity slows. Euro zone output contracted in July, according to S&P Global data released on Friday.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said that means the euro zone economy is likely to contract between July and September. Fall and winter could prove even more challenging.

Drying of the Rhine affects supply chains

In Europe, the costs of a low-rain winter and spring and an intensely hot summer are piling up.

Water levels along the Rhine, which is Germany’s most important inland waterway for transporting industrial goods, have fallen precipitously, disrupting shipping routes. The Rhine is crucial for the movement of commodities, including coal, which is in higher demand as Germany races to fill storage facilities with natural gas before next winter.

Water flows at the Kaub gauging, located west of Frankfurt, are at 45% of average levels for this time of year, according to data from the German Federal Institute of Hydrology. The agency said it has created “frequent obstructions” for ships. He doesn’t expect a recovery in water levels until the end of August.

Eric Heymann, an analyst at Germany’s Deutsche Bank Research, said that means not all ships can be loaded to full capacity. Some will decide that it doesn’t make economic sense to complete certain trips if they have less cargo, according to the Federal Institute of Hydrology.

“It’s another disruption to supply chains and a risk factor for energy supply,” Heymann said.

Concerns over the Rhine could weigh on Germany’s all-important manufacturing sector, such as when the river was too dry in 2018. Researchers at the Kiel Institute for the World Economy found that in a month with 30 days of water shortage, production industrial sector in the country fell about 1%

Worrying consequences

Warmer water temperatures also make it harder for inland power plants to operate, as they rely on rivers for cooling. In France, utility giant EDF said on Friday that three reactors were running at lower capacity due to higher temperatures in nearby rivers. Hydroelectric production in Europe is also expected to be affected.

“The situation is very complicated,” said Marco Alverà, who previously served as CEO of Italian energy infrastructure company Snam.

He worries that high energy use this summer, as homes and businesses use their air conditioners, could consume supplies that need to be conserved for the winter. Europe is currently stockpiling fuel in case Russia cuts off natural gas shipments.

“I’m afraid there will be blackouts,” said Alverà, who now runs TES, a green hydrogen company. “Even if Russia doesn’t cut supply, the market is very tight.”

“It’s going to add another stress,” he said, stressing that the cost of living will increase.