Scorching heat threatens Europe’s economy on the brink

There is record inflation, made worse by Russia’s war in Ukraine. A weak euro makes it more expensive for companies to import the necessary goods. Italy, the bloc’s third-largest economy, is embroiled in a political crisis following the overthrow of the country’s prime minister.
But Brzeski also keeps a close eye on extreme weather conditions. A summer of drought and scorching heat, exacerbated by climate changeis adding to the headaches for businesses across Europe, weighing on economic output at a time when every move counts.

“It adds to the concerns,” Brzeski said.

Water levels along the German Rhine, which is crucial for transporting chemicals, coal and grain, are so low that shipping has been halted, threatening to scramble supply chains. Hot water temperatures in France are hampering the operation of some nuclear power plants amid other maintenance issues. And in northern Italy, farmers are facing the worst drought in 70 years, affecting the production of crops ranging from soybeans to parmesan cheese.
These climate-related issues could spur inflation as Europe struggles to cope with rising food and fuel prices. Inflation in the 19 countries that use the euro hit a record high of 8.6% in June, forcing the European Central Bank to announce a aggressive intervention earlier this week.

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

Extreme heat swept the northern hemisphere over the past week as record-breaking heatwaves stoked wildfires in Spain and France, scorched the United States and triggered alerts in dozens of Chinese cities.

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%.

Disturbing consequences

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.”

A pump irrigating a cornfield in Carmagnola, Italy, Thursday, July 21.  As drier than usual conditions and an early summer heat wave wreak havoc on agriculture and electricity supplies, the Italian government was forced earlier in July to declare a state of emergency. emergency in five regions.
The heat also affects the Italian agricultural sector, where Po River 400 miles long is experiencing record high water levels amid a devastating drought. The river flows through the heart of Italy, where 30% of its food is produced.
Between 1980 and 2020, the countries of the European Economic Area are valued having lost between 450 billion euros ($460 billion) and 520 billion euros ($532 billion) due to weather and climate events. The financial balance sheet could become heavier in the years to come.
Europe is becoming a “hot spot” of the heat wave, according to new search. It will also impact tourism in the hottest parts of the continent, as well as worker productivity during particularly brutal times, said Tom Burke, co-founder of climate change think tank E3G.

“It will add another stress,” he said, pointing out that the cost of living will increase.


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