Extreme heat in the United States, Europe and China hits economies around the world and worsens inflation

This summer in the United States, Europe and China, a historic heat wave and drought turned mighty rivers into mudflats. Farmers watched helplessly as their precious crops withered in the fields. And hundreds of millions of people around the world have had to huddle indoors, away from work, to avoid heatstroke and prevent the power grid from failing.

Extreme weather conditions have cost consumers around the world dearly. Already feeling the pain of 18 months of inflation due to supply chain problems and Russia’s invasion of Ukraine, they now have to pay even more for food and much more than they want.

Simply transporting goods is now more expensive in Europe due to low water levels on major rivers. To avoid running aground, freighters must reduce their loads, slow deliveries and raise prices.

“I think it’s too early to quantify, but I have no doubt that these extreme events are contributing to high prices,” said Sergey Paltsev, deputy director of MIT’s Joint Program on the Science and Politics of Global Change. Fortune. “In the future, if we don’t change course, it will be worse.”

Ruined crops

According to a recent survey by the American Farm Bureau Federation.

According to the AFBF, of the vast swath of the United States that accounts for 80% of American wheat production and three-quarters of beef production, 60% is currently suffering from severe drought conditions. It’s an area that straddles a growing “extreme heat belt” in the Midwest and South that’s expected to be home to nearly a third of the nation’s population in coming decades.

“The Midwest produces up to a quarter of some of the staples of the global food supply,” says Amir Jina, assistant professor at the University of Chicago’s School of Social Policy. “What happens when you suddenly have this big shock for a quarter of the food produced? You will definitely see price increases.

These price increases, says Jina, will ultimately be felt the hardest by the poorest people. Indeed, low-income households spend a greater proportion of their income on food and will therefore feel the pressure of rising food prices more quickly.

A long-term solution, Jina says, is to move some crops threatened by harsher weather to places where they can thrive in the future. But it will be years before relocating something as massive as the impact of agriculture.

Russia’s invasion of Ukraine offers a glimpse of what happens when crops from a highly productive agricultural region suddenly become unavailable for export. For months, until recently, Ukraine was unable to export its grain due to a Russian blockade at sea, causing prices for crops like wheat to soar globally.

“A big forest fire or drought in one of the big breadbasket areas can have this staggering effect on food prices around the world,” says Jina. “We cannot instantly move this grain production from its current location to a more predictable location.”

Factory shutdowns

Earlier this month, China’s Sichuan province ordered the closure of all factories in most of its cities due to the country’s worst heat wave in six decades, a measure that lasted until August 25. The extreme weather conditions put enormous pressure on the country’s power grid, and the shutdown was expected to alleviate some of the stress.

Sichuan is home to some of the world’s leading semiconductor and electronic component factories and is a major supplier of lithium, a key metal used in electric car batteries. A brief halt in manufacturing can therefore have a significant downstream impact on a variety of consumer goods.

Already, a global shortage of semiconductors since last year has driven up prices for things like new and used cars and electronics. It has laid bare the fragility of essential supply chains.

“Global economies are so interconnected that if one of these extreme weather shocks occurs in a certain country, it doesn’t just affect locals,” says Jina. “It can spread through this very tightly connected network.”

While factory closures in China will have immediate consequences, Jina says there are more “insidious” ways extreme heat can affect the global economy. Because people work slightly less at high temperatures and suffer more heat exhaustion, this reduces labor productivity.

Last year, a group of climatologists estimated that the extreme heat waves of the past decade have lowered Europe’s annual GDP by 0.3% to 0.5% in the years they occurred due to lower worker productivity.

Around the same time, the DC-based think tank Adrienne Arsht-Rockefeller Foundation Resilience Center published a report estimating that extreme heat-related productivity losses cost the US economy an estimated $100 billion a year.

Reduced efficiency can prompt companies to spend more on a larger workforce, higher wages to compensate for harsh conditions, or better facilities. “The money has to come from somewhere and a lot of it will be passed on to the consumer,” says Jina.

Delivery routes blocked as European rivers dry up

In Europe, the current heat wave has dried up the busy Rhine, the continent’s most important commercial artery. Its waters are currently so low that cargo ships can carry as many as before, making transportation more difficult and more expensive, according to Deutsche Bank analysts.

The low tide has also exacerbated an existing energy crisis in Europe that was triggered by the war in Ukraine. For example, coal carriers cannot necessarily get their product to where it needs to be. Deutsche Bank wrote in a report earlier this month that “the problem of lack of water is particularly pressing, as coal-fired power plants are switched on to secure electricity supplies in the face of gas supplies. greatly reduced”.

If the low water levels persist until the end of the year, this will have a real impact on the German economy, according to a report released earlier this month by Capital Economics. The country’s GDP could fall by 0.2% because of this, a significant figure for Europe’s largest economy.

Meanwhile, dwindling waterways are also impacting the continent’s nuclear power generation. In France, the Loire is now so low that the government has released water from dams to ensure a high enough water flow to cool four nuclear power plants downstream, Reuters reported. The power plants contribute a combined fifth of the total electricity produced in the country.

A warmer future

Compared to the middle of the 19th century, the world is one degree Celsius higher than in pre-industrial times, according to the Intergovernmental Panel on Climate Change (IPCC). Experts expect more warming and therefore an even greater impact of weather conditions on agriculture and other industries.

“If we’re already experiencing these events to some degree, you can imagine how unbearable it’s going to be when it’s double or triple,” Paltsev says. “We’re going to have bigger events, bigger impacts on inflation,” he says.

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