As geopolitical tensions between the East and West rise, sanctions and souring relations could have lasting impacts on business globally.
Europe is in the midst of what scientists say could be the worst drought in 500 years. After an unusually dry winter and spring, successive heatwaves have hit the continent, sparking fierce wildfires and drying up key waterways.
One river drastically effected by the drought is the Rhine, a vital shipping route through Germany’s industrial heartlands and on to global export terminals in the North Sea.
As the water levels drop, cargo ships are having to carry reduced loads in order not to run aground. This means freight companies need more ships to carry the same amount of cargo, which could in turn push up costs and further add to already eye-watering levels of inflation.
The drought is the latest in a series of supply shocks that have hammered Germany’s economy and caused snarl-ups around the world. The coronavirus pandemic, Russia’s invasion of Ukraine, and China’s zero-Covid policy have all caused significant disruption for Germany – traditionally the continent’s industrial powerhouse.
Reduced shipping capacity could have knock-on effects beyond inflation. Shortages of coal – traditionally transported along the Rhine – could dent activity at Germany’s coal power plants, which are being fired up again as Russia chokes off gas supplies to Europe.
Economists believe the disruption could shave half a percentage point off Europe’s largest economy this year, adding to the significant losses Germany is already expected to suffer.
There are hopes that rainfall could soon replenish the Rhine, as well as Europe’s other waterways. But rainfall following drought can lead to flash floods, which could cause other kinds of disruption.
Furthermore, analysts fear that such extreme weather events may become more frequent as climate change intensifies. These concerns pile further pressure on governments and industry to accelerate their actions on climate policy and prepare for similar events in the future.
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