Heatwaves and waterways

Rob Armstrong (0:00)

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Katie Martin (0:57)

People of the Internet, something wild just happened. I was out getting my lunch from the posh salad place up the road, and droplets fell from the sky all around and indeed upon me. I gather these droplets are known as rain. Now I know it's boring when Brits bang on about the weather, but it really has been a furnace in London over the summer. We're just now getting the first rain showers in the best part of two months. We're banned from using hose pipes, gardens and crops are dying, lakes are drying up, the whole thing. The thing is, this is not just like a Brit chit chat thing. There's also been a serious drought across continental Europe too, and it matters. The Rhine River, a major logistical artery in Germany, has in some places almost disappeared. Economists and investors are being forced to take this seriously.

Today on the show, Weathernomics. How do we cope economically with these bouts of heat?

This is Unhedged, the markets and finance podcast from the Financial Times. I'm Pushkin. I'm Katie Martin, a markets columnist down in the bunker of FT Towers in London. And joining me down the line from Frankfurt in Germany, making his Unhedged debut, is the FT's Olaf Storbeck, who's here to give us the lowdown. Olaf, thanks for coming on.

Olaf Storbeck (2:20)

Hi, thanks for having me.

Katie Martin (2:22)

So obviously, Brits bang on about the weather. But what's it been like in Germany this summer?

Olaf Storbeck (2:28)

It was really incredible hot, in particular in June, when we had this two weeks of 36 whatever degrees. And even at night, it didn't really fell below 30, which was kind of really cruel.

And the humidity was very high, so you couldn't even sweat properly. And we were, fortunately, we were on holiday. I was on holiday for a large part of it, but we came back and the last weekend literally felt like the pandemic. We were hunkering down in our flat, sitting in underwear in front of a ventilator, which obviously I didn't do during the pandemic. But you couldn't go outside, and you could just couldn't do anything.

Katie Martin (3:09)

And so those temperatures for Americans listening, that's well into the hundreds, isn't it? Like, it's seriously hot.

So like the sort of competing ways of looking at this in the UK, some people are like, oh, it's fantastic. All this lovely sunny weather, it's going to be great for our sparkling wine. And there's a bunch of us who were just like, what the hell are you talking about? This is just unpleasant. But also, it is like literally damaging economically. I mean, how much is that cutting through in Germany now? How big of an issue is that?

Olaf Storbeck (3:37)

Well, the full impact is still difficult to define, of course, because it's still ongoing. There's a precedent in 2018, there was a similar drought where domestic shipping was kind of impaired quite significantly. And there are estimates that it kind of knocked out, wiped out 0.4% of GDP in that year. So it's kind of quite a meaningful impact. And just today, we had a warning from Bundesbank, which said that...

Katie Martin (4:09)

So that's your central bank there?

Olaf Storbeck (4:10)

The central bank, which warned that supply chains will be disrupted, and it will have a meaningful impact on industrial production. They don't put a number, they didn't put a number to that. Oxford Economics, I think, estimated that it could kind of wipe out 0.2 percentage point of GDP growth in the third quarter.

But it is kind of in for the wider economy, it is meaningful and for some kind of particular sectors, it's quite brutal.

Katie Martin (4:39)

Yeah. So let's talk about the Rhine River. So the Rhine, it sort of it cuts in at the Netherlands, right? It goes in through Rotterdam, I believe, cuts right the way through the Netherlands, and then it kind of kicks south.

Olaf Storbeck (4:52)

Well, it's the other way around, to be honest, right? It starts in Switzerland.