Extreme Heat and War Put New Pressure on Europe’s Economy

Europe is facing growing economic pressure as extreme heat, drought and the war in the Middle East disrupt energy supplies, transportation and agriculture across the continent.

Successive heatwaves have forced nuclear power plants to reduce or halt operations because of low river levels and high water temperatures. In Romania, state-owned nuclear operator Nuclearelectrica began disconnecting its only operating reactor from the power grid because water levels in the Danube had fallen too low to safely cool the equipment.

France and Hungary have also curtailed nuclear power production amid high temperatures and low river levels.

The extreme weather is affecting agriculture and transportation as well. Drought has reduced crop yields and fueled destructive wildfires, while record-low water levels on Germany’s Rhine River are threatening the movement of industrial goods.

Triodos Bank estimates Europe’s extreme heat could cost the economy about €180 billion, or roughly 1% of GDP, this year. The impact could come through lower worker productivity as well as disruptions to agriculture, energy and transportation.

At the same time, Europe is facing higher energy costs tied to the war in the Middle East. Natural gas prices have risen sharply, while gas storage levels remain well below typical levels for this time of year.

The Strait of Hormuz remains a major concern because it is a key route for global energy shipments. Analysts say a prolonged disruption could make it more difficult and expensive for Europe to replenish gas supplies ahead of winter.

Some economists believe Europe can avoid a major energy shortage because the continent has reduced its dependence on Russian gas and lowered overall gas consumption since the 2022 energy crisis.

Still, the combination of extreme weather, higher energy prices and geopolitical uncertainty is creating another challenging period for Europe’s economy.

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