German industry output at risk as heat wave dries up Rhine river

[BERLIN] Germany’s manufacturing sector is at risk of disruption as dry weather again hampers shipments on the country’s most important inland waterway, clouding the outlook for a revival of Europe’s biggest economy.

The Rhine river’s water levels have dropped to an extent that vessels have to reduce their loads, driving up transport costs, said Fabian Spiess, deputy director of the BDB, the country’s main inland-shipping trade group. That’s a problem for manufacturers including Thyssenkrupp and BASF that rely on deliveries of goods like coal, crude oil and chemicals by barge.

Thyssenkrupp said its Duisburg plant has been affected as the steelmaker had to suspend its own pusher-boat service and switch to external vessels that can navigate the current levels. BASF had to increase the number of ships in service because they’re forced to operate at a reduced capacity.

“Another prolonged period of low water would likely weigh on industrial output, adding to the challenges facing an already weak sector and posing downside risks to our forecast for a gradual recovery following the energy price shock,” Martin Ademmer of Bloomberg Economics said Wednesday in a note.

Firms are probably better prepared now compared with similar episodes in the past, cushioning the potential blow, he added.

The German government has been trying to engineer a recovery from years of stagnation with domestic reforms as well as greater spending on infrastructure and defence. The effort to revive growth has been complicated by the conflict in the Middle East, which prompted Berlin in April to halve its 2026 growth forecast to 0.5 per cent.

In 2018, low Rhine water levels that lasted for months cost the German economy about 0.4 per cent of output, according to the Kiel Institute for the World Economy. Another dry spell in 2022 caused disruptions shortly after Europe was hit by the fallout from Russia’s attack on Ukraine.

This year, the problem is compounded by a lack of rail alternatives, as a key freight route along the right bank of the river is closed for works, according to Deutsche Bank economist Marc Schattenberg. 

After positive data for the second quarter, “transport-related supply-chain delays – on top of the current geopolitical backdrop – would be an unwelcome headwind for the stabilising manufacturing industry,” Schattenberg said in a note. However, given the many factors currently at play, it’s “difficult to isolate a precise GDP effect unless disruptions become severe.”

SEE ALSO

German industry grows more than expected on auto sector

German factory orders rebound as Iran-war effects fade

German business sentiment rises in June, Ifo says

Another question is whether the situation will boost inflation just as the European Central Bank ponders whether to add to June’s interest-rate hike to contain the price spike triggered by the Iran war. Executive Board member Isabel Schnabel cited the Rhine this month as one factor that could keep price growth elevated.

Daniel Hartmann, an analyst at Bantleon, reckons that Rhine water levels alone won’t push up German inflation by more than 0.2 percentage points. But they could add to wider challenges with dry weather, including higher food prices, he said. BLOOMBERG