Low Rhine Water Levels to Slow German Economy, Bundesbank Says — 2nd Update

By Ed Frankl

Low water levels in Germany caused by recent heatwaves, particularly on the River Rhine, are likely to impede the country's economic growth in the third quarter, the Bundesbank said Thursday.

"The only limited availability of transport routes on major rivers and sharply rising transport costs are expected to place significant constraints on industrial output and export growth," the country's central bank said in its August monthly report.

The water gauge at the Rhine bottleneck of Kaub, in western Germany, notched a record low in recent days, meaning ships must carry fewer goods to pass through. Much of Western Europe endured its hottest June and July on record.

The shallow water levels are set to lead to additional delivery delays, further exacerbating material shortages, increasing transport costs and delaying production, the Bundesbank said.

"This will put a marked strain on industrial activity that has otherwise just started to strengthen," it said.

While the economy has proved more resilient than expected to the jump in energy prices caused by the war in Iran in the first half of 2026, activity is likely to at best only expand marginally in the third quarter, the report said.

After only subdued growth last year, gross domestic product increased 0.4% and 0.2% in the first and second quarters, respectively, mainly driven by strong demand for its exported goods, though that could unwind in the months ahead.

Some economists have pointed to the growth in exports as evidence of foreign companies temporarily stockpiling German goods before the expected rise in costs and supply issues due to the conflict in the Middle East.

Low capacity utilization in the industrial sector and the rise in European Central Bank interest rates in June are damping corporate investment, it said. Private consumption continues to be weighed down by high energy prices.

While there is no sign that the war is triggering second-round inflationary effects through wages, the inflation rate could temporarily rise further in the coming months, the report said.

However, robust recent manufacturing orders, alongside increased investment pledged by the government in defense and infrastructure, will continue to support the economy ahead.

"The German economy is now clearly on a recovery path that the war in the Middle East has also failed to thwart," the Bundesbank added.

Write to Ed Frankl at edward.frankl@wsj.com

(END) Dow Jones Newswires

August 20, 2026 07:33 ET (11:33 GMT)