Eurozone: Heatwaves add macro risk for growth

Eurozone: Heatwaves add macro risk for growth – ING

GDP Loss from Heatwaves

0.3-0.5%

Estimated GDP losses in Europe due to reduced labor productivity from heatwaves.

Projected Economic Damage by 2029

0.8%

Potential accumulated economic damage from heatwaves by 2029, factoring in various disruptions.

Food Inflation Increase

0.4-0.9pp

Estimated increase in food inflation due to heatwaves and drought, with potential doubling in 30 years.

§ 01 Executive Snapshot

What: Recurring heatwaves are emerging as a structural drag on Eurozone growth, according to ING’s Global Head of Macro.
Who: Carsten Brzeski, ING’s Global Head of Macro, and various academic and ECB research sources.
Why it matters: The impact of climate-related disruptions is becoming a significant downside risk for the economic performance of the Eurozone.

A 2021 study estimated that heat-related productivity losses in Europe led to GDP losses of 0.3-0.5%, with some regions exceeding 1%.
A joint paper from the University of Mannheim and the ECB indicated that the European economy lost approximately 0.3% of output due to heatwaves and could see this damage grow to 0.8% by 2029.
The ECB previously estimated that heatwaves and drought could increase food inflation by 0.4-0.9 percentage points, with this effect potentially doubling in the next 30 years.

The historical perspective shows that heatwaves were once considered temporary costs, but their impact is now recognized as a persistent economic challenge.
The broader narrative includes climate change effects, which are increasingly seen as critical factors influencing economic stability and growth in the Eurozone.

Immediate implications include potential supply chain disruptions and productivity losses, which could hinder economic recovery and growth.
Long-term, the continued impact of climate-related issues may necessitate structural changes in economic planning and policy to mitigate these risks.

Potential risks involve regulatory and infrastructural challenges as climate impacts could strain existing resources and emergency services.
Competition from other regions less affected by climate extremes could further diminish the Eurozone's economic attractiveness.

Monitoring the frequency and severity of heatwaves and their economic impact will be crucial in assessing future growth trajectories.
Future developments in energy prices and their effects on households and businesses will provide signals on the Eurozone's economic resilience.

§ 07

What impact do heatwaves have on Eurozone growth?

Recurring heatwaves are emerging as a structural drag on Eurozone growth, leading to productivity losses and economic challenges.

Why are heatwaves considered a significant risk for the Eurozone economy?

Heatwaves are becoming a major downside risk for economic performance, with studies estimating GDP losses and potential increases in food inflation.

How much could heat-related losses affect GDP by 2029?

Research indicates that heatwaves could lead to a GDP loss of approximately 0.8% by 2029.

Who is analyzing the economic impact of heatwaves in the Eurozone?

Carsten Brzeski, ING’s Global Head of Macro, along with various academic and ECB research sources, are analyzing this issue.