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Record economic damage for Europe from high temperatures

2026-08-10 23:20:33Biznes SHKRUAR NGA REDAKSIA VOX
Record temperatures hit Europe's economy this summer

Reuters/ For anyone in Europe who still thought climate change was a problem for future generations, this summer's extreme heat waves have brought a stark reality: the economic consequences of climate change have already arrived and are costing hundreds of billions of euros.

This summer's record temperatures and droughts, which scientists say have been exacerbated by global warming, have caused serious problems in energy production, shipping and public health.

Meanwhile, the fire season is expected to be among the most severe, if not the worst, in European history.

Economists and academics estimate that the damage to the European economy is already measured in hundreds of billions of euros. But they warn that this is just the beginning: costs are expected to rise faster than temperatures.

Europe is experiencing climate change faster than any other continent, and the damage is straining public finances, causing strong inflation fluctuations, changing the map of tourism, and forcing Europe to rethink the way it produces energy and transports goods.

"What makes 2026 particularly worrying from an economic perspective is that we have several consecutive episodes of extreme phenomena," said Sehrish Usman, an economist at the University of Mannheim.

Record economic damage from high temperatures

Temperatures reached record highs in June and July and economists say the economic damage is likely to exceed any previous record.

Transport on the Rhine and Danube rivers, major arteries for freight transport, has been severely restricted due to low water levels. More than half a dozen nuclear reactors have stopped or reduced production due to cooling difficulties.

Forecasts for agricultural production have been lowered. Later-harvested crops, such as corn and sunflowers, had already suffered losses of around 6–7% in July.

Extreme heat also reduces human productivity and has already caused tens of thousands of deaths. Germany alone has reported more than 10,000 deaths related to high temperatures.

Meanwhile, the costs of emergency response, such as fighting fires and limiting energy consumption, are further straining public budgets.

According to ING estimates, the disruption of transport on the Rhine alone could reduce Germany's GDP this year by 0.3 percentage points. MBH Bank in Hungary estimates that every week that the country's largest nuclear power plant is out of operation could cost the economy 0.1 percentage point of GDP.

German insurance company Allianz estimates that the two-week heat wave in June alone will reduce Europe's GDP by 0.3 percentage points. Meanwhile, climate change could shave around 5–7% of economic growth from the most exposed economies, such as Spain, France and Italy, by 2030.

“The total bill for this year will be much higher,” said Hazem Krichene, an economist at Allianz. He added that this figure does not include fires, droughts, various floods and the expected impact of the El Niño phenomenon.

Given that the eurozone is expected to grow by only about 1% this year, the blow is particularly severe.

Southern Europe faces declining tourism and rising inflation

Southern Europe could be among the hardest-hit regions, as temperature increases are greatest there. This could damage tourism revenues, worsen crop failures and spur migration to cooler areas.

"Can you imagine tourists walking in the south of Italy or Spain at 45 degrees? I can't. So I think the nature of tourism will change," said Carsten Brzeski, an economist at ING.

He said the south could see more tourists year-round, but the peak summer season could decline as holidaymakers move north. This would hit the hotel and service industries in southern Europe.

The South will also face higher food price increases due to extreme weather, making it harder for the European Central Bank (ECB), which is already struggling to keep inflation close to target.

According to researcher Maximilian Kotz, extreme temperatures affect food prices more in countries that are already hotter.

In 2022, extreme temperatures increased eurozone inflation by about 0.34 percentage points, through rising food prices, with Southern Europe taking the biggest hit.

Meanwhile, disruptions to river transport are making fuel supplies more difficult in some parts of Europe, widening regional price differences.

Pressure on budgets is increasing concern for the ECB

The fiscal consequences are falling more heavily on economies that are least able to cope with them, Allianz points out.

According to the company's estimates, annual tax revenues could fall by about:

1.8% in France

1.3% in Italy

1.3% in Spain

This happens because progressive taxation systems cause state revenues to fall faster than economic output.

At the same time, business profit margins will fall, reducing investment and deepening economic damage.

Government spending, meanwhile, is rising both due to emergency funding and the need for long-term investments — for example, to make energy production and transport networks more climate-resilient.

"A key concern is that countries still rely heavily on ad hoc emergency responses, which are costly and often inefficient," said Heather Grabbe, senior fellow at the Bruegel Institute.

But investors may balk if governments try to spend more. Debt levels are already high – particularly in France and Italy – and countries need to invest in defense and the green energy transition.

The dilemma could appeal to the ECB, which bought trillions of euros of countries' debt in the last decade to keep borrowing costs low when inflation was very low.


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