Drought hampers river trade and pushes Germany into deeper recession

Inflation and the weakness of global commercial chains had already been announcing an incipient recession in the German economy, but the ZEW data on investor confidence for August paints a much darker outlook. “We are going into a hard and long recession, longer than we expected,” Thomas Gitzel, of LiechtensteinVP Bank, remodels his forecast, after learning of the August drop in the ZEW index, compiled by the Center for European Economic Research in Mannheim. Analysts expected a stagnation, but the forecasts are rapidly weakening and this is partly due to the drought. "German GDP is likely to shrink already in the current quarter," Gitzel advances, "and that means that the recession has already started, because nobody expects a rebound in the economy in the last quarter." In addition to inflation, supply chains in crisis and the end of the era of cheap money, "the drought is causing problems for the industry by disrupting river traffic, the consequences can be devastating," warns Holger Lösch , deputy director general of the Federation of German Industries (BDI), who sums up the mood: "the situation was already very tense and has now worsened." "The ZEW index had already fallen sharply in July and the additional costs of gas and electricity from October are having a very significant negative impact, particularly in the sectors of the economy more related to consumption," explains the ZEW expert. Michael Schröder, who only excludes banks from his predictions, relieved by the reduction in interest rates already decreed by the ECB and which will have consequences in the autumn. "The balance of expectations is at its lowest level since the financial crisis of 2008," agrees Ulrich Wortberg, an analyst at Helaba, who adds the costs of the drought to an already inescapable negative balance. Related News standard If Germany lowers VAT on gas from 19% to 7% Rosalía Sánchez The reduction will be in force, for the time being, until March 31, 2024 German river transport transported around 195 million tons of goods in 2021, but this year it is limited to about 40% of that amount, estimates Roberto Spranzi, CEO of the German Inland Shipping Transport Cooperative (DTG). Already in 2018, the drought wreaked havoc on this sector, resulting in lost growth for the German economy as a whole. River traffic on the Middle and Upper Rhine, which accounts for 49% of the container shipping throughput of the European river arm, was severely restricted at the end of that autumn, disrupting logistics chains, not just for shipping of containers, but also for chemicals, petroleum products, iron ores and other industrial raw materials, which in turn caused a loss of about 5 billion euros for German industrial production in the second half of 2018. Another consequence was the sharp rise in transport prices, which were multiplied by four on the Rhine and in the FARAG area (Vlissingen, Antwerp, Rotterdam, Amsterdam and Ghent). As for the river transport of passengers, this summer many cruises are being canceled. With an annual growth rate of 14.6%, 1.64 million tourists traveled European rivers in the last summer before the pandemic. Almost 38% of them were Americans and Canadians, although the highest growth rate, of 41%, was seen among tourists from Asia, Russia and Scandinavia. “All that is already forgotten. Basel is now on the verge of being completely cut off from Rotterdam", says the managing director of the shipping company ULTRA-BRAG, Thomas Knopf, "ships can no longer be fully loaded, we currently need four or five times as many ships for the same transport volume because the water level would lead them to run aground«. “All inland shipping is operating with reduced load”, adds André Auderset, director of the Association for Maritime and Port Management, “the revenue potential of companies is, of course, limited and there are even operations that stop completely. The drought and its consequences make the recession facing Germany different from that of other countries. While other economies will be hit hardest in their manufacturing sector, in Germany it is the auto and energy sectors that will suffer the most. “Designing these supply chains in such a way that alternatives are quickly established without creating new and fatal dependencies in markets, individual suppliers or countries,” advises Rainer Bizenberger, CEO of AlixPartners, “Until now, the selection of suppliers and our own locations has been based on issues such as quality, cost and delivery reliability. Now it is necessary to analyze geostrategic aspects».

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