Climate Change: How Extreme Weather Endangers Our GDP!

Climate Change: How Extreme Weather Endangers Our GDP!

On August 12, 2025, it was published in the trade journal European Economic Review published a study looking at the long-term economic impact of extreme weather events in Europe. This comprehensive research examines the impact of heatwaves, droughts and floods on the economy in different regions of the EU.

The analysis covers 1,160 regions at NUTS 3 level, which roughly corresponds to German districts. The results show that the regional gross domestic product (GDP) is reduced by an average of 1.5 percentage points two years after a heat wave. Four years after drought events, the decline is as much as 3 percentage points, and for floods the decline is 2.8 percentage points. The negative effects are particularly evident in poorer regions with high temperatures, such as Italy and Spain. Here, the loss of productivity in connection with the subsequent weather extremes is particularly pronounced.

Economic inequality in Europe

The study urgently warns that without targeted measures there is a risk of increasing economic inequality within Europe. Wealthier regions that are better prepared for heatwaves experience higher capital losses during floods, but overall have the necessary resources to better respond to extreme climate conditions.

“After extreme events, we experience a decline in the working population and in labor productivity,” the study highlights. Regions are increasingly having to invest in adaptability, be it in air conditioning or flood protection. But these investments could be less productive in the long run. The need for tailored strategies to adapt to climate change is therefore becoming more urgent.

Current weather extremes

Heat records have been recorded in the northern hemisphere in recent weeks. Reports show that temperatures exceeded 40 degrees Celsius in North America, over 50 degrees Celsius in northwest China and record highs of up to 46 degrees in Italy in parts of southern Europe. Germany recorded its hottest day on record in July 2022, with temperatures exceeding 38 degrees Celsius.

The extreme temperatures not only have health effects, such as the estimated excess mortality of 4,500 people in Germany in 2022, but also economic consequences. Particularly vulnerable groups are older people, pregnant women and people with previous illnesses. A national water strategy has been intended to improve water supplies since March 2023, after many German municipalities had to declare an emergency due to a lack of drinking water.

Preparing for future extreme events

The Federal Ministry of Economics reported that the damage caused by weather extremes to houses, infrastructure and agricultural production is becoming increasingly serious. Adaptation measures, such as building higher dikes and using air conditioning, are therefore becoming increasingly important. Germany is investing in climate protection to promote the transformation of the energy and economic sectors. From 2026 to 2035, more than 80 billion euros are earmarked for climate protection investments annually.

Climate change also leads to economic savings. A study estimates that annual energy spending could fall by 15 to 20 billion euros between 2025 and 2040. While the total costs of extreme weather events could rise to between 280 and 900 billion euros by 2050, it is clear that an increased focus on climate protection also has positive economic effects. This shows once again the need for clear policy signals for future investments and the decarbonization of the economy.

In summary, it should be noted that the ongoing extreme weather events are not only putting a heavy burden on the environment, but also on the economy. Adaptation strategies and targeted investments are essential to mitigate the effects of climate change and strengthen economic resilience in Europe.