Heatwave crisis weighs on Europe, economic damage could reach hundreds of billions of euros

Europe faces a growing economic bill due to prolonged heatwaves that have swept the continent this year. The consequences have extended across energy, transport, agriculture, tourism, and public finances.

Record temperatures and drought, worsened according to scientists by global warming, have made energy production and transport operations more difficult. Meanwhile, the wildfire season is heading towards the worst record ever registered in Europe.

Estimates from economists and academics show that the total damage to the European economy could reach hundreds of billions of euros. Their warning is that this may be only the first phase, as costs are expected to rise faster than temperatures themselves.

The European continent is warming faster than any other continent, and the impact of this phenomenon is reflected in inflation, state finances, tourism, energy production, and freight transport.

The consequences of the record temperatures recorded in June and July have been felt in several sectors. Low water levels have significantly hindered the movement of goods on the Rhine and Danube rivers, which form two important European transport corridors.

Problems have also appeared in the nuclear industry. More than six reactors in Romania and Hungary have shut down or reduced activity due to difficulties with cooling systems. At the same time, forecasts for agricultural production have been revised downwards.

Maize, sunflowers, and other crops harvested later have suffered losses of 6 to 7% as early as July.

Extreme heat has also damaged worker productivity and caused tens of thousands of victims. In Germany alone, more than 10,000 deaths linked to high temperatures have been reported.

In addition to direct damage, public budgets are being weighed down by spending on emergency management, including firefighting interventions and measures to limit electricity consumption.

Germany, Spain, France, and Italy are among the countries expected to face the greatest economic impact of this situation.

According to ING calculations, the disruption of transport on the Rhine could deduct 0.3 percentage points from Germany’s GDP in 2026.

In Hungary, MBH Bank has calculated that each week the country’s largest nuclear power plant remains out of operation costs the economy about 0.1 percentage points of GDP.

Allianz, meanwhile, estimates that the two-week heatwave in June alone will reduce Europe’s GDP by 0.3 percentage points.

The impact of climate change could reduce economic growth by 5 to 7% by 2030 in the most exposed economies, among them Spain, France, and Italy.

This effect is seen as particularly significant at a time when the eurozone economy is forecast to expand by only 1% this year.

However, economists emphasize that the full damages may become apparent only in the coming years. Extreme weather episodes create a chain of economic consequences that continue even after temperatures drop and the heatwave ends.

Southern Europe is expected to be one of the most affected areas, due to higher temperatures and greater exposure to droughts and fires.

Climate change may also reshape tourism. Temperatures of up to 45 degrees Celsius could make southern European destinations less attractive during the peak of the summer season.

As a result, in the future tourists may turn more often towards northern European countries or choose to travel south during the cooler periods of the year.

Another expected consequence is a rise in food prices. Extreme temperatures affect prices more strongly in regions that are already warm, putting southern Europe in a particularly exposed position.

An assessment shows that the extreme temperatures of 2022 raised inflation in the eurozone by 0.34 percentage points through food price increases.

The climate crisis is also leaving its mark on state finances. Allianz predicts that the decline in annual tax revenues, as a result of shrinking economic output, could reach 1.8% in France and 1.3% in Italy and Spain.

Businesses, on the other hand, could see a decline in profit margins. This would limit investments and further deepen the economic losses.

Governments must increase spending on emergency response, while at the same time need to invest in infrastructure adaptation, from power generation systems to roads and transport networks.

Economists assess that excessive reliance on temporary emergency measures can prove costly and ineffective in the long term.

With public debt at high levels, especially in France and Italy, European governments face a difficult choice: to finance climate measures and emergency response, while they must simultaneously cover defence and the transition to green energy.

This situation could bring the European Central Bank back into the spotlight. The institution could come under pressure to intervene if rising public debt and higher borrowing costs cause turmoil in financial markets.

This year’s heatwave shows that climate change is no longer just a threat to future generations. Its costs are materialising now, directly affecting budgets, prices, businesses, tourism, and everyday life in Europe.