Extreme heat is slamming the world's three biggest economies all at once

London (CNN Business) It has historically been difficult to predict how catastrophic climate change will be for the world economy. But it's been more and more clear this summer how quickly expenses may mount.

At a time when economic growth is already slowing significantly and adding to pressure on prices, extreme heat and drought conditions are wreaking havoc on the United States, Europe, and China.

All factories in the Sichuan region of China have been instructed to close for six days in order to conserve energy. The Rhine river in Germany is having difficulty accommodating the typical voyages of ships bringing coal and chemicals. Additionally, because of the soaring temperatures, residents of America's West Coast have been urged to consume less electricity.

For the specific regions that are impacted, these events "have the potential to be extremely important," according to Ben May, director of global macro research at Oxford Economics.

The duration of the heatwaves and lack of rain may determine how painful it is. However, analysts caution that little relief is in the cards for nations like Germany, where businesses are bracing for the worst.

On August 15, a barge travels by exposed rocks and sandbanks on the Rhine in Bacharach, Germany.

It goes beyond the Rhine. The Yangtze, the Danube, and the Colorado are just a few examples of the worldwide growth-supporting rivers that are drying up, which is hindering trade, messing with irrigation systems, and making it more difficult for companies and power plants to maintain a comfortable temperature.

Meanwhile, the intense heat is harming labor productivity, straining the electricity grid, and interfering with transit networks.

According to Bob Ward, director of policy and communications at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics, "we shouldn't be startled by the heat wave episodes." They are exactly what we predicted and reflect a global trend of increasing frequency and intensity.

With temperatures above 40 degrees Celsius (104 degrees Fahrenheit) in numerous places, China is experiencing its most intense heat wave in the past 60 years. This week, temperatures in certain areas of California might reach 109 degrees Fahrenheit. For the first time ever, the United Kingdom saw temperatures above 40 degrees Celsius earlier this summer.

In England's Greenwich Park, one can see dry grass. Currently, there are either drought alerts or warnings in place across 63% of the land in the European Union and the United Kingdom, an area that is almost the same size as India.

In England's Greenwich Park, one can see dry grass. Currently, there are either drought alerts or warnings in place across 63% of the land in the European Union and the United Kingdom, an area that is almost the same size as India.

The pressure on the world economy was already present. Energy prices are rising rapidly, fuelled by Russia's invasion of Ukraine, putting Europe at serious risk of a recession. Growth in the US is threatened by high inflation and the Federal Reserve's aggressive interest rate increases. The effects of strict coronavirus lockdowns and a housing crunch are being felt in China.

Premier Li Keqiang of China stated this week that "we are currently at the most difficult point of economic stability."

Another cause for concern is that extreme weather conditions may increase "existing pinch spots" in supply chains, which are a big factor in why inflation has been difficult to control, according to May of Oxford Economics.

In China's Sichuan region, firms that produce semiconductors and solar panels have shut down operations this week. Power restriction will affect firms owned by some of the largest electronics manufacturers in the world, including Foxconn, a supplier to Apple (AAPL), and Intel (INTC).

In addition, the province is the hub of China's lithium mining sector. The stoppage might increase the price of the essential raw ingredient for batteries used in electric vehicles.

According to state media outlet The Paper, the nearby city of Chongqing, which is located at the meeting point of the Yangtze and Jialing rivers, has also directed enterprises to shut down for a week through next Wednesday in order to save electricity.

On August 17 in Chongqing, China, the Yangtze riverbed is exposed as a result of the drought.

As a result, estimates for China's growth this year have already been revised downward. On Thursday, Nomura analysts reduced their projected GDP growth for 2022 to 2.8%, far below the government's aim of 5.5%, while Goldman Sachs analysts reduced their projection to 3%.

Meanwhile, the Rhine in Germany has shrunk below a key level, which is preventing ships from passing. The river serves as a vital transportation route for goods like grain, chemicals, and commodities like coal, which is more in demand as the nation scrambles to fill storage facilities with natural gas in time for the winter. Given the manpower shortage, finding alternate sources of transportation is challenging.

In a statement this week, Holger Lösch, deputy director of the Federation of German Industries, warned that "it is only a matter of time before plants in the chemical or steel industries are shut down, mineral oils and building materials fail to reach their destination, or large-volume and heavy transports can no longer be carried out."

According to Carsten Brzeski, global head of macro at ING, low water levels along the Rhine reduced Germany's economic output in 2018 by around 0.3 percentage points. Low water, though, wasn't an issue there until late September. This time, he predicted that it might reduce GDP in the second half of the year by at least 0.5 percentage points.

According to data released this week, economic mood in Germany continued to decline in August. Brzeski predicted that in order to avoid a recession in the near future, the nation "would require an economic miracle."

The largest man-made water reservoir in the nation, Hoover Dam/Lake Mead, which was created by the Colorado River dam, has a bathtub ring watermark.

The largest man-made water reservoir in the nation, Hoover Dam/Lake Mead, which was created by the Colorado River dam, has a bathtub ring watermark.

The largest reservoirs in the United States are being drained by an unusual drought in the West, forcing the federal government to enact additional mandatory water cuts. Farmers are being forced to destroy crops as a result.

According to a study by the American Farm Bureau Federation, a lobbying organization that promotes agricultural interests and an insurance company, nearly three quarters of US farmers say this year's drought is negatively affecting their harvest, resulting in considerable crop and income loss.

The survey, which included 15 states and about half of the value of agricultural production in the US, was carried out in areas of extreme drought in Texas, North Dakota, and California from June 8 to July 20. In California, a state with significant fruit and nut tree crops, 50% of farmers reported that the drought forced them to remove trees and multiyear crops, which will have an impact on their future income.

According to Ward of the London School of Economics, expenses will continue to rise in the absence of considerable investment in infrastructure improvement. Additionally, the effect might not be gradual.

"There are indications that these heat waves are not merely become more frequent and stronger over time. It's happening somewhat abruptly, which will make adaptation more challenging "explained Ward.

— Reporting assistance was provided by Laura He, Shawn Deng, Simone McCarthy, Benjamin Brown, Aya Elamroussi, Taylor Romine, and Vanessa Yurkevich.