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Global Economic Research

Rivers Turning Into Rivulets

Droughts bring major risks for commerce and agriculture.

An unusually dry winter and extreme heat in summer have pushed Europe towards its worst drought in almost five centuries, forcing governments to declare national water emergencies. Water scarcity has hit over 60% of the area from Portugal to Eastern Europe, distressing lives and livelihoods of people across the continent. 

The consequences of droughts go well beyond water restrictions for households. Record-breaking temperatures in Europe are affecting a host of industries from transport to tourism to agriculture. 

The hot and dry spell has lowered crop yields amid dwindling river levels, a major source of freshwater in Europe, as farming activities require a large amount of water. While European household consumption accounts for only 10% of direct total water usage, about 60% is used by the agriculture sector. 

The lack of rainfall is disrupting freight, as falling water levels in the Rhine River have rendered portions of it unnavigable. The river connects the industrial belts of Germany, Switzerland and Denmark, and carries everything from grains to chemicals to coal. Shippers are experiencing delays and higher costs.   

Water scarcity will aggravate the European energy and food crises.

Chart: Europe: Water use by sector & Europe: Energy generated by Type (TWh) between Jan. and July 2022

Europe is already facing an energy crisis from disruptions in natural gas supplies and record high prices. Low water levels in the region’s rivers are now putting pressure on the power supply too. Hydroelectricity generation has fallen by 20% in Europe and by 44% in Spain. Nuclear power output has also been affected, as water is needed to cool the reactors.

Summer droughts are increasingly becoming the norm in Europe, costing an estimated €100 billion over the past three decades. Four of the past five European summers have been extremely dry. According to the European Commission, drought-related damage will cost the European Union about €9 billion a year, soaring to an annual €40 billion under a 3°C temperature rise scenario.

The economic climate of Europe isn’t looking very bright for a host of reasons. Climate change is certainly one of them.


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Vaibhav Tandon portrait

Vaibhav Tandon

Chief International Economist
Vaibhav Tandon is the Chief International Economist within the Global Risk Management division of Northern Trust. In this role, Vaibhav briefs clients and colleagues on the economy and business conditions, supports internal stress testing and capital allocation processes, and publishes the bank's formal economic viewpoint. He publishes weekly economic commentaries and monthly global outlooks.

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