German economy is threatened because the river dries up


The drying up of the Rhine is disrupting supply chains and posing additional challenges to the already troubled German economy.

On CNN , German officials said the Rhine River was falling to "extremely low" levels in some areas, disrupting freight traffic in the country's most important waterway. The lack of rainfall in recent months has meant that freighters have had to reduce their payloads, skyrocketing transportation costs, and exacerbate electrical and economic risks.

Last month, the German Federal Hydrographic Institute warned that water at the Kaub measuring station west of Frankfurt was 45% below average for this time of year. The agency said the river's lack of water left boats "often in trouble".

 

Water levels are forecast to drop even further, then "very slightly" over the next few weeks, the Rhine Water Transport Authority said yesterday.

The current situation is reminiscent of 2018. The river has a similar problem, causing "cargo congestion" and reducing German GDP growth by 0.2%, according to economists at Deutsche Bank.

While water levels are not as low as they were last year, "cargo ships have already had to reduce their loads," the bank's report last month said. "As a result, shipping costs are also more expensive." For example, at the Kaub measuring station, a water level below 75cm will cause large container ships to "have to reduce their load by 30%".

Analysts at UBS warned: "Taxes paid on goods also increase when the water level drops to a certain level".

The river drying could also exacerbate the crisis in Europe's largest economy. Germany is already facing recession risks because of the fuel crisis, high inflation and supply chain disruptions.

Recently, they had to restart coal power plants to ensure enough electricity amid Russia's reduced gas supply. However, "much of the coal needed is transported from the Dutch ports of Amsterdam, Rotterdam and Antwerp", along the Rhine. This will increase pressure on Germany, Deutsche Bank warned.

According to Henri Patricot, oil analyst at UBS, the low water level "is challenging the transportation of energy and goods". The Rhine is an important transport route for chemicals and grains.

In a report this week, Capital Economics said that compared to the gas crisis, the troubles from the Rhine were "a minor problem for German industry". However, the situation could be more serious this year.

If water levels "remain low until December, German GDP could lose 0.2%" in the second half of the year. "Inflation will also go up," said economist Andrew Kenningham.

Germany's massive manufacturing industry could also suffer a greater impact. Researchers at the Kiel Institute for Global Economy previously estimated a month-long low water level would reduce industrial output by 1%.

Currently, German authorities have not imposed restrictions on traffic on the Rhine. However, a spokesman for a waterway agency told CNN that in some cases, transportation may not be feasible if the amount of chemical cargo on board must be drastically reduced.

Many other countries in Europe are also experiencing record heat and drought. London's iconic Thames River is also now dry. In France, rising river water temperatures are hampering the operation of nuclear power plants, as reactors require large amounts of water for cooling. In Italy, the worst drought in 70 years is affecting crops.



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