IW warns of low water: German economic growth in 2026 at risk

Impact channel: Why water levels matter so much

The IW warning joins a series of similar analyses. The Kiel Institute for the World Economy (IfW) had also recently pointed to the vulnerability of German industry to climatic fluctuations. Both institutes emphasize that inland shipping accounts for about a fifth of all freight traffic in Germany – a share that can hardly be absorbed by trucks or rail during low water.

Looking at the Rhine, the drama becomes particularly clear. The water level at Emmerich on the Lower Rhine is considered a decisive indicator for shipping on the central European waterway. In recent weeks, the value repeatedly fell below the critical mark from which large cargo ships can only operate to a limited extent. Tributaries such as the Main and the Moselle also reported restrictions.

For energy-intensive industries, the water scarcity comes at a doubly inconvenient time: Many power plants along the Rhine and the Elbe require river water for cooling. When the flow decreases, plants must reduce their output, which further aggravates the already tense situation on the electricity market. The chemical industry, which obtains a large part of its preliminary products via inland shipping, is also among those directly affected.

Affected: Energy suppliers and industry on the Rhine

The IW points out that low water is not a new phenomenon, but has become more frequent in recent years. The hot and dry summers of 2018, 2019 and 2022 each brought transports to a standstill and caused damage in the billions. Schäfer sees this as a structural risk for Germany as an industrial location that requires political answers.

According to the economists, these answers must go beyond short-term water level management measures. What is needed are investments in a crisis-proof infrastructure – for example through the expansion of transshipment points, a modernization of the waterways, and a stronger shift of transports to more climate-resilient modes of transport. The companies themselves are also obligated to make supply chains more diversified and less vulnerable to weather extremes.

Outlook: What policy and business can do now

Until mid-2026, the federal government had still estimated the growth forecast at a mini-plus of 0.2 percent. Should the IW forecast of zero growth or a recession materialize, this would be the third economic setback within a few years – with tangible consequences for the labor market, public finances, and the willingness of companies to invest.

The IW announced that it would update its economic forecast in late summer. Until then, according to Schäfer, much depends on the weather of the coming weeks: If sufficient rain brings the water levels back, the growth dip could turn out mild. If the precipitation fails to materialize, a "summer of economic tightness" threatens.

The warning is directed equally at policy and business. While the government must above all examine short-term aid for affected freight forwarders and industrial sites, it is also necessary to remedy the structural weaknesses of German supply infrastructure. Otherwise, according to the IW, every further heat wave will become a stress test for the entire economy.