European Economy Stung by Drought and Record Heat

The European economy is suffering from twin woes of drought and heat, which have devastating effects on agriculture, energy production, transportation, and labor productivity.

Rivers like the Danube, Rhine, and Tiber are at record lows due to prolonged dry weather, causing massive disruptions in industries such as agriculture and transportation. In Italy, for example, there were 53 'hot' days between January and July this year, exceeding the long-term average by 47 days.

The heat dome is primarily responsible for the extreme temperatures, which have reached the low-40s C in some regions. Germany's Allianz estimates that a worker's output per hour falls three percent when temperatures hit 30C or more.

The Rhine River has been particularly affected, with freight rates climbing sevenfold since early June due to reduced cargo capacity and increased costs. This is expected to reduce German GDP growth by around 0.2 percentage points if these transport disruptions persist.