The Strategist

How does Rhine River affect German economy?

01/29/2019 - 11:20

Last year was not easy for the main European economy. The economy of Germany resisted, but it was in a fever, and in the second half of the year it almost slipped into recession. In addition to well-known issues, there are problems that are less known and noticeable. One of them is the German rivers, which were shallowed in the summer of 2018, which, according to calculations by JPMorgan economist Greg Fuzesi, reduced the GDP of Germany by at least 0.7%.

“When the water level in rivers decreases, ships cannot be used at full capacity when transporting cargo, because they can run aground,” Greg Fuzesi explained importance of the rivers for the German economy. If the water level in the river is reduced to 40 centimeters, then navigation in general becomes dangerous. But even with a higher level, the cost of transporting goods increases dramatically.”

Fortunately, the shallowing is seasonal. According to Fuzesi, influence of the water fullness of the rivers, which he calls the “Rhine effect”, will add 0.55% to the German GDP in the first quarter.

Impact of a decrease in the water level in German rivers on the economy becomes particularly noticeable on the example of the largest of them, the Rhine. In the past year, it was so shallow that even became unnavigable in many areas. Barges returned to working at full capacity only at the end of December.

The Rhine is not only the largest river in Germany. It is also the most important water transport artery of Europe, through which millions of tons of coal, foodstuffs and thousands of other cargoes are transported annually. It carries its waters through the industrial areas of Switzerland, Germany and Holland for more than 1,300 km and flows into the North Sea in Rotterdam, the main port of Europe.

The importance of the Rhine for the economy is explained by the fact that even the highly developed German network of roads and railways cannot replace it. Barges carry loads five times their own weight and are therefore considered to be a very cheap and profitable mode of transport. Thus, according to the data of the German Federal Institute of Hydrology, the transportation of goods along the Rhine from Rotterdam to Basel is 40% cheaper than by rail.

The Rhine is fed with water by glaciers and rains. Because of global warming, glaciers in the Alps now give much less water than a few decades ago: in 1973-2010, the volume of glacial water decreased by 28%. Now, according to the authoritative glacier specialist Wilfried Hagg from the University of Munich, the decline has become even more noticeable and reached 35%. He says: "Global warming means that the decline in water levels, like last year, will occur more and more often."

Last summer there was a severe drought in Germany, just like in other Central European countries. As a result, navigation was discontinued for almost a month in a number of small sections of the Rhine. Not only Greg Fusezi, but many other economists believe that this played an important role in slowing the growth rate of the German economy in the third and fourth quarters.

The Rhine is the main transport artery for industrial giants such as Daimler AG, Robert Bosch GmbH and Bayer AG. When the water level in the river fell sharply in the summer, the metallurgical company Thyssenkrupp AG was forced to delay shipment of products to its customers, including companies such as Volkswagen AG. The thing is that ore is transported along the Rhine for the main plant Thyssenkrupp in Duisburg.

The shallowing of the Rhine cost BASF SE about a quarter of a billion euros because the chemical giant had to use more expensive means of transport. In a recent newspaper interview, BASF Executive Director Martin Brudermüller called for large investments in the construction of locks and dams, with the help of which the Rhine can be maintained in navigable state even during severe droughts.