- <img src="https://s.yimg.com/lo/mysterio/api/EDCE51D670DDDA2C9B6FD75D43259148EB29AED4404D413927326B801C942249/subgraphmysterio/resizefill_w800_h559;quality_80;format_webp/https:%2F%2Fmedia.zenfs.com%2Fen%2Freuters.com%2F8489de3d5af732af8c52977afd0a6c7c" alt="Europe's getting hotter, markets are taking note” loading=”lazy”>
Aug 7 (Reuters) – Record temperatures across Europe are piling fresh pressure on food prices, supply chains and heavily indebted economies, creating another headache for financial markets already roiled by an Iran war-driven energy shock
Here’s how extreme heat is becoming a key macroeconomic indicator for investors.
Investors’ supply chain worries have centred on the Strait of Hormuz and other trade routes disrupted by the Iran war.
But Europe faces its own bottlenecks. Major waterways, including the Rhine river, are suffering from exceptionally low water levels.
Around 285 million metric tons of freight are transported on the Rhine each year The river carried roughly 80% of goods moved on Germany’s inland waterways, connecting key industrial centres
Some cargo services have been suspended, while others are operating with reduced loads, pushing up transport costs.
Nomura senior European economist Andrzej Szczepaniak said he was monitoring water levels at Kaub, one of the shallowest points on the Rhine, on a daily basis.
The disruption risks adding to inflationary pressures.
Heatwaves, droughts and wildfires across Europe are also hitting agriculture, raising concerns about food supplies and prices.
“We are definitely going to notice food price inflation,” said Invesco global market strategist Paul Jackson, citing the additional impact of the El Nino weather pattern, which is expected to intensify food inflation pressures globally.
If energy prices rise again, the impact could create a “double whammy” for central banks, Jackson said.
In Britain, major supermarket groups have warned another food-price shock could be on the horizon.
That leaves the European Central Bank and the Bank of England balancing inflation risks from extreme heat against the potential drag on economic growth.
Markets are pricing in at least one more ECB interest-rate increase by year-end.
A recent paper by the University of Mannheim and the ECB estimated that heatwaves, droughts and floods reduced Europe’s economic output by 0.3% last summer. It projected cumulative losses could rise to 0.8% by 2029.
Persistently low water levels could further weigh on industrial production and growth.
“We’re at concerning levels (with the Rhine); however, we’re probably not at the stage where it could cause a drag on GDP,” said Nomura’s Szczepaniak, though he added that forecasts for continued dry weather in Germany remained a concern.
