Aurelia Butler

BERLIN/LOBITH, Netherlands (Reuters) -Already bracing for recession and winter energy shortages, German businesses are grappling with the lack of another precious commodity: rain. Weeks of baking temperatures and scant rainfall this summer have drained the water levels of the Rhine, the country’s commercial artery, causing delays to shipping and pushing freight costs up more than five-fold.A spokesperson for the transport ministry told a government news conference on Wednesday that “we do expect an intensification of the low water level” on the Rhine, but could not say if or when vessels might no longer be able to pass along the river.Flowing from the Swiss Alps to the North Sea via German industrial heartlands, the Rhine is a major route for products ranging from grains, to chemicals to coal.Economists estimate the disruption could knock as much as half a percentage point off Germany’s overall economic growth this year. Barges like the Servia, a 135-metre (148 yards) vessel carrying iron ore from the port of Rotterdam to German steelmaker Thyssenkrupp (ETR:TKAG)’s plant in Duisburg, can only load 30-40% of its capacity or risk running aground. On a trip this week, laden with small piles of iron ore, the boat often hugged the groynes along the riverbank where the water was deepest. In some places the Rhine was so shallow that other vessels were moored far below the quays where people walk. Signs warning people about dangerously high waters stuck out of the riverbed, and rocks lay exposed.”Normally you have more than two meters under the ship but now you only have 40 centimetres in some places,” the Servia’s captain Peter Claereboets told Reuters. “And then for us the challenge is to get past those points without touching, without damaging the ship.””Because of the low water levels, the sailing route gets narrower, and we actually start travelling like trains, in a convoy,” he added.Other boats, unable to cope with shallower waters, have stopped sailing altogether. The resulting bottlenecks are another drag on Europe’s largest economy, which is grappling with high inflation, supply chain disruptions and soaring gas prices after Russia’s invasion of Ukraine in February. Freight charges on the Rhine have risen to around 110 euros ($112) per tonne from around 20 euros in June for a liquid tanker barge. Chemicals group BASF last week said it could not rule out production cuts.Credit rating agency Moody’s (NYSE:MCO) said the low Rhine water levels will increase costs for chemicals companies, particularly those with production facilities on the upper Rhine, and could lead to production cuts. Coal power plants – now back in fashion as an alternative to Russian gas supplies – face supply shortages with boats unable to take on enough coal. Utility Uniper, which turned to the German government for a bailout in July after becoming an early casualty of the energy crisis, has since warned of possible output cuts at two of its plants that make up 4% of Germany’s coal-generated electricity capacity.To the south, Switzerland is releasing 245,000 cubic metres of its oil reserves to plug supply constraints caused by the low Rhine levels. GROWTH AT RISKThe situation has prompted comparisons with 2018, when Rhine levels also plunged. “It might not be a mistake to assume at this point that the low water will weigh on GDP by a quarter to half a percentage point,” said Jens-Oliver Niklasch, an economist at LBBW.”I think it’s more dangerous this time because the supply situation is tight anyway and the coal-fired power plants in particular, which are extremely important for generating electricity, are likely to be hit harder.”Stefan Schneider, an economist at Deutsche Bank (ETR:DBKGn), expects the German economy will fall into a mild recession from the third quarter and that overall growth in 2022 would be 1.2%.”If water levels continue to drop, growth could also drop just below 1%,” he said. The extent of the drop in Rhine water level is monitored at a chokepoint at Kaub in southwestern Germany, where it reached 48 cm on Wednesday compared with the 1.5 metres needed to carry fully loaded vessels. “If you compare this with the last few years, the water levels are exceptionally low,” said Christian Hellbach of Waterways and Shipping Office in Duisburg. Some companies have adapted since the 2018 drought. In an emailed statement, BASF said it had implemented an early warning system for low water levels and is also chartering and developing ships suitable for shallower waters.German coal importers meanwhile hope river levels will rise soon to allow them to meet a demand that, as the war in Ukraine grinds on, shows no sign of abating.”Before the war it was definitely 1 in 10 boats were doing coal, and since the war we’re definitely at 1 in 5, probably more. So coal transport since the war in Ukraine jumped up all at once,” Claereboets said. ($1 = 0.9793 euros) More

(Reuters) – Traders slashed bets the Federal Reserve will deliver a third straight 75-basis-point interest rate increase in September after data released Wednesday showed U.S. inflation slowed last month.Consumer prices didn’t rise at all in July compared with June, a U.S. Labor Department report showed, marking the slowest monthly inflation in more than two years as fuel prices dropped. Traders of futures tied to the Fed’s policy rate sent the contracts soaring. Prices after the report show traders now expect the Fed to raise rates by 50 basis points next month, not the 75 basis points priced in before the CPI report.The Fed’s current policy rate target is now 2.25%-2.5%. More

The German economy stagnated in the second quarter, with the war in Ukraine, soaring energy prices, the pandemic and supply disruptions bringing it to the edge of a downturn. Inflation is running at 8.5%.”The economic perspective of our country has become fragile,” Finance Minister Christian Lindner of the liberal Free Democrats (FDP) said as politicians from the ruling coalition’s larger parties took aim at his draft “inflation adjustment law”.”The economy is deteriorating,” he told reporters in Berlin.Presenting his plans, Lindner argued that if the government did nothing, 48 million people would be hit by 10 billion euros ($10.2 billion) in effective tax hikes from Jan. 1 next year due to rising inflation.Lindner wants to avert “secret tax rises” with his plan, which he said would give relief to the “broad middle of society”. A spokesperson for Chancellor Olaf Scholz spoke of his “goodwill” for Lindner’s initiative, adding: “The concept that Mr Lindner presented today is part of a larger overall concept that needs to be discussed and developed in the next few weeks.”The plans have already been criticised by members of the two larger parties in the coalition government, Scholz’s Social Democrats (SPD) and the ecologist Greens.Achim Post, vice-chairman of the SPD parliamentary group, told Reuters Lindner’s plans “still need improvement” and that the relief should “primarily target people with small and medium incomes”.”The proposed increases in the basic tax-free allowance and child benefit go in the right direction, but are not enough,” Post said, suggesting direct payments instead to provide targeted relief to small- and medium-income households.The broad three-way coalition, which took office last December, is a first at national level and strains have also emerged between the partners over Scholz’s leadership on the Ukraine crisis.($1 = 0.9783 euros) More

The US consumer price index rose by 8.5 per cent year-on-year in July, a slower annual increase compared to June, as inflationary pressures eased on the back of lower petrol prices.CPI data released on Wednesday showed no increase between June and July, compared to a 1.3 per cent monthly increase recorded a month ago. On an annual basis, the CPI decelerated from a 9.1 per cent increase in June.Both figures were improvements over economists’ expectations of a 0.2 per cent increase in the CPI on a monthly basis and an 8.7 per cent rise annually — but mean inflation is still close to 40 year highs.The data are unlikely to represent a large enough shift to stop the Federal Reserve from ploughing ahead with more aggressive tightening of monetary policy to subdue inflation.The core measure of CPI — which strips away more volatile food and energy prices and is most closely watched by the Fed — recorded a smaller monthly increase of 0.3 per cent compared with 0.7 per cent in June. But on an annual basis it rose at an unchanged pace of 5.9 per cent.Wall Street stock futures jumped following the inflation reading, with contracts tracking the broad S&P 500 index rising 1.6 per cent. Those tracking the Nasdaq 100 gauge, which comprises tech shares that are more sensitive to changes in interest rate expectations, added 2.2 per cent.US government bonds also rallied, with the yield on the 10-year Treasury note — a proxy for borrowing costs worldwide — falling 0.1 percentage points to just under 2.7 per cent. The policy-sensitive two-year yield slid 0.19 percentage points to 3.1 per cent, reflecting a sharp rise in the price of the instrument.Traders began pricing in smaller interest rate increases from the Fed in the coming months. Prior to the report, the futures market expected the central bank to lift rates to 3.6 per cent by year-end. Expectations are now at 3.4 per cent. Bets that the Fed would raise rates by 0.75 percentage points at its September policy meeting also fell.The inflation data were released following a strong jobs report on Friday last week that stamped out fears of a near-term recession but suggested the Fed was struggling to cool down the overheated economy.

It comes as the administration of President Joe Biden and congressional Democrats have been celebrating the passage through the Senate of a $700bn climate, tax and healthcare bill that represents a crucial pillar of the president’s economic agenda.While they have dubbed it the Inflation Reduction Act, the bill is not expected to have a significant effect on prices in the short term. However, certain measures are designed to reduce costs over the medium and long term, including a provision allowing the government to negotiate prescription drug prices.Additional reporting by Harriet Clarfelt in London More