Europe’s economy faces a one-two punch from extreme weather and war

Key Points:

• Europe is facing severe heatwaves that have forced nuclear power plants in Romania, France, and Hungary to reduce output due to low river levels needed for cooling, while drought and wildfires threaten agriculture and food prices.
• The heatwaves, combined with energy supply challenges from the Iran war and rising natural gas prices, could cost the European economy up to €180 billion ($208 billion) this year, equivalent to 1% of GDP.
• Critical waterways like the Danube and Rhine are experiencing record low water levels, disrupting transport and industrial supply chains, notably impacting Germany’s economy and companies like BASF.
• Europe’s natural gas storage is at a decade low for this time of year, raising concerns about winter energy shortages as the Strait of Hormuz remains effectively closed, limiting LNG supplies and pushing prices to near-record highs.
• Despite these challenges, analysts believe Europe is better prepared than in 2022 to avoid energy blackouts due to reduced gas demand and diversified supply, though high energy prices and supply vulnerabilities persist.