Rhine River Water Levels Hit Historic Low Amid US-Japan Intervention

Germany's economy is facing a new challenge as the Rhine River water levels have hit a historic low, potentially dragging down economic growth by at least 0.3 percentage points. According to ING, the prolonged heatwave has driven the Rhine River's water level to a record low of 24 centimeters at the Kaub gauge, surpassing the previous record set in October 2018.

The Rhine River is crucial for Germany's inland shipping, transporting around 285 million tons of goods annually and accounting for about 80% of the country's freight volume. Each day, roughly 600 vessels cross the German-Dutch border, connecting key industrial clusters such as the Rhine-Ruhr steel region and the Ludwigshafen chemical hub.

ING forecasts that unless weather conditions improve swiftly, the current low-water levels will shave at least 0.3 percentage points off Germany's full-year GDP growth. The German economy had already posted three consecutive quarters of expansion and was on track to achieve around 0.8% annual growth, but this shock will significantly dampen the recovery.

Meanwhile, JPMorgan and Goldman Sachs have weighed in on the U.S.-Japan joint intervention aimed at curbing the yen's depreciation. While JPMorgan believes that coordinated intervention will reduce the risk of the USD/JPY breaking above 164, it is unlikely to push the exchange rate below 150, Goldman Sachs thinks that joint intervention can only temporarily curb the yen's depreciation and capital repatriation is the long-term solution.