The Bundesbank warns in its August bulletin that the decrease in flow in the main rivers of Germany, caused by the drought hitting Europe this summer, could "temporarily slow down" the recovery process of the largest economy on the continent.
According to the entity, the German economy has entered the second half of 2026 with an underlying cyclical dynamic "quite solid," supported by a favorable evolution of industrial orders that sustain the advance of exports and by the boost coming from public spending. However, the German central bank emphasizes that various sources of tension persist and warns that "the marked period of drought adds additional restrictions temporarily."
In particular, the lower availability of waterways for the transport of goods and the sharp increase in logistics costs could "significantly hinder" both industrial production and the growth of sales abroad.
"The low water levels are also exerting marked pressure on overall economic activity in the third quarter," notes the Bundesbank, which considers that the consequences of the decrease in flow in the major rivers of the country "could temporarily slow down the recovery of the German economy."
At the same time, the institution highlights that the prolonged low utilization of productive capacity in the industry, combined with the recent rise in interest rates, is weighing down business investment plans.
In terms of prices, the body chaired by Joachim Nagel acknowledges that the inflation rate could temporarily spike in the coming months. However, it emphasizes that the scenario remains largely conditioned by the evolution of the war in the Middle East and warns that, if energy prices remain high or continue to rise, cost pressures will end up being transferred more intensely to consumer prices of other goods and services.
Thus, the Bundesbank indicates that household consumption is being diminished by persistently high energy costs. It adds, citing data from GfK, that the fragility of the labor market and pessimistic income expectations are behind the low willingness to spend of families, while it considers it likely that the decline in demand for new housing will end up cooling activity in residential construction.
"In general, it is likely that the recovery of the German economy will lose significant momentum temporarily during the third quarter," concludes the institution.