Home Business Drought and the dry Rhine: the threat to the German economy (analysts)

Drought and the dry Rhine: the threat to the German economy (analysts)

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“The European authorities and the industrial sector have warned that the Rhine, one of the main waterways in Europe, is very close to being closed to commercial traffic due to the very low water levels caused by the drought. The Rhine could therefore become a bottleneck in German distribution, hindering the large flows of diesel and coal ”. Thus begins the analysis of John Plassard, director & investment specialist of the Mirabaud Group, who recalls the Rhine represents one of the most important shipping routes in Europe. About 80% of inland waterway freight transport depends on this river, which passes through large cities and ports such as Cologne, Düsseldorf, Rotterdam and Basel. It is particularly important for the transport of agricultural products and raw materials, such as coal and oil, and for the production of chemicals.

“In recent years, the German manufacturing sector has come under severe pressure when the river’s water level was low. Analysts fear that the German economy is sliding into a recession due to an environment characterized by high inflation and low growth, difficulties in the supply chain and pressures due to the war in Ukraine, particularly in the energy sector. Mirabaud expert -. German industrialists now pay almost the same degree of attention to the daily level of rivers and the amount of gas coming from Russia (20%, or 33 million cubic meters). The low water levels observed in the past have demonstrated the negative impact these can have on the economy ”.

An analysis conducted by the Kiel Institute to measure the economic impact of low water levels showed that in a month of water levels below the 78 cm threshold, German industrial production is about 1%. less than a month with regular water levels. In its 2020 analysis, the Institute said low water levels cause transportation disruptions which in turn trigger an economically significant drop in activity. John Plassard indicates that the results show that in a very small sector of the economy, such as inland navigation, exogenous factors can amplify and have significant effects at the macroeconomic level. This phenomenon is known as the “Butterfly Effect”. Furthermore, there are fears that the economic impact this time around may be worse, as supply chains have already been severely tested by the Covid-19 pandemic, the war in Ukraine threatening Germany’s energy supply and the rise the use of larger barges (with greater draft) on the river.

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“Projects are underway to build barges and narrow-draft vessels, as well as to modify the Rhine bed and better predict water levels after the 2018 crisis, but these measures are slow to materialize. Bloomberg provides accurate information on the companies most affected by the Rhine “closure”. The most important listed manufacturers with plants along or near the Rhine are BASF, Wacker, EMS-Chemie, DSM, Umicore, Akzo-Nobel and Celanese. Commodities include chemicals, debris, sand, coal, metals, and mineral oil products. The downsizing of the Rhine could not have come at a worse time from an economic point of view ”, concludes the expert.

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