“It adds to the concerns,” Brzeski said.
But the ECB’s ability to act could be limited as economic activity reverses. The eurozone saw output contract in July, according to S&P Global data released on Friday.
Chris Williamson, chief economist at S&P Global Market Intelligence, said this means the eurozone economy is expected to contract between July and September. Fall and winter could be even more difficult.
The drying up of the Rhine hits supply chains
In Europe, the costs of a sparsely rainy winter and spring and an extremely hot summer are piling up.
Water levels along the Rhine, which is Germany’s most important inland waterway for transporting industrial goods, have dropped precipitously, disrupting transport ship routes. The Rhine is crucial for the movement of raw materials, including coal, which is in high demand as Germany races to fill natural gas storage facilities before next winter.
Water flows at the Kaub gauge, 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 created “frequent obstructions” for ships. He does not expect water levels to recover until late August.
Eric Heymann, an analyst at Deutsche Bank Research in Germany, said that means not all ships can be loaded to capacity. According to the Federal Institute of Hydrology, some will decide that it does not make economic sense to make certain routes if they have less freight.
“This is another disruption for supply chains and a risk factor for electricity supply,” Heymann said.
Rhine concerns could weigh on Germany’s hugely important manufacturing sector, like when the river was too dry in 2018. Researchers from the Kiel Institute for World Economy found that in a month with 30 days of low water , the country’s industrial production had fallen by about 1%.
Warmer water temperatures also make it more difficult 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 operating at lower capacity due to higher temperatures in nearby rivers. Hydroelectric production in Europe is also expected to suffer.
“The situation is very complicated,” said Marco Alverà, who was previously CEO of Italian energy infrastructure company Snam.
He fears that high energy consumption this summer, as households and businesses use their air conditioning, will eat away at reserves that need to be preserved for the winter. Europe is currently stockpiling fuel in case Russia interrupts natural gas deliveries.
“I’m afraid there will be power cuts,” said Alverà, who now runs TES, a green hydrogen company. “Even if Russia does not cut off the supply, the market is very tight.”
“It will add another stress,” he said, pointing out that the cost of living will increase.