For anyone in Europe who still believed that climate change was a problem for future generations, the suffocating heatwaves this summer have shown that their economically costly impact with profound effects on people’s lives is already a reality.
The temperature records and drought this summer – exacerbated by global warming, scientists say – have caused major disruptions in energy production, maritime transport, and public health systems, while the wildfire season is on track to become the worst ever recorded in Europe, writes Reuters.
Overall, the impact on the region's economy can already be measured in hundreds of billions of euros, estimated economists and researchers. However, they warn that this is just the beginning, as costs are expected to rise faster than temperatures.
The climate is changing faster in Europe than on any other continent, and the damages already affect public finances, cause strong inflation variations, redraw the tourism map, and force the bloc to rethink how energy is produced and goods are transported.
"What makes 2026 particularly worrying from an economic perspective is that we have multiple episodes of extreme phenomena," said Sehrish Usman, an economist at the University of Mannheim.
"Take the heatwaves, droughts, wildfires... these phenomena occur simultaneously and, for the most part, in the same regions, amplifying their impact on each other," she said.
Record Economic Damage Caused by Heat
Temperatures reached record levels in June and July, and economists say economic damages will likely surpass all previous records.
Traffic on the Rhine and Danube, essential arteries for freight transport, is severely affected due to low water levels. Numerous nuclear reactors have stopped or reduced production due to cooling difficulties. Estimates for agricultural production have been revised downward, and late-harvested crops like corn and sunflower were already experiencing losses of 6-7% in July.
The heat reduces human productivity and has already caused tens of thousands of deaths, with Germany alone reporting over 10,000 heat-related deaths.
Meanwhile, emergency intervention costs - such as firefighting or reducing energy consumption - put additional pressure on budgets.
ING estimates that halting traffic on the Rhine will reduce Germany's GDP, the world's third-largest economy, by 0.3 percentage points this year, while the Hungarian bank MBH estimates a GDP reduction of 0.1 percentage points for each week the country's largest nuclear plant is unavailable.
Allianz, the German insurance company, estimates that just the two-week heatwave in June will reduce Europe's GDP by 0.3 percentage points, and climate change will diminish economic growth by 5-7% by 2030 in the most exposed economies, such as Spain, France, and Italy.
"The total bill for this year will be much higher," said Hazem Krichene, an economist at Allianz. "This figure does not take into account fires, droughts, various flood episodes, or the expected El Niño phenomenon."
Considering that the euro area is estimated to grow by only 1% this year, the impact is significant.
However, Usman says that the total extent of economic losses will only be felt in a few years.
"You would expect the losses to be greatest in the year when an extreme event occurs and then diminish, but we find exactly the opposite," said Usman. "The economic impact increases in the following years, as extreme weather triggers a chain of economic consequences that manifest slowly."
How Southern Europe Is Affected
Southern Europe could suffer the strongest impact, as temperature increases are highest in this region, reducing tourism revenues, exacerbating agricultural losses, and leading to migration to other regions.
"Can you imagine tourists walking through southern Italy or Spain at 45 degrees? I can't. So, in my opinion, the nature of tourism will change," said Carsten Brzeski, an economist at ING.
Southern Europe may attract more tourists throughout the year, but the peak of the summer season will decrease as tourists head north, affecting the hospitality industry in the south, Brzeski argues.
The south will also experience a stronger impact on food prices due to extreme weather events, complicating the situation for the European Central Bank, which is already struggling to maintain inflation at target levels.
"Greater effects of extreme temperatures on food prices are observed in places that are already warmer, so if you are in southern Europe, you will feel a greater impact," said Maximilian Kotz, a researcher at the Barcelona Supercomputing Center.
The extreme heat of 2022 increased eurozone inflation by 0.34 percentage points through higher food prices, with southern Europe being disproportionately affected, Kotz estimates.
Meanwhile, the interruption of river transport complicates fuel supply to parts of Europe, accentuating regional price differences.
Heat Pressure on Budgets Puts Pressure on ECB
"The fiscal consequences weigh heaviest on economies with the least ability to absorb them," Allianz said in a research note.
Annual reductions in tax revenues due to production declines could reach 1.8% in France and 1.3% in Italy and Spain, the company estimates, as progressive tax systems cause budget revenues to decline faster than economic output.
Company profit margins will also decrease, reducing investments and amplifying economic losses.
At the same time, costs are rising, both because governments have to finance emergency interventions and because they need to invest - for example, to adapt energy production or transport routes to future climate conditions.
"A major concern is that countries still rely far too much on ad-hoc emergency interventions, which are both costly and often quite inefficient," said Heather Grabbe, a senior researcher at the Bruegel think tank.
However, investors may oppose if governments try to spend more. Debt levels are already high - especially in France and Italy - and countries need to invest in defense and the transition to green energy.
This dilemma could bring the ECB into play, which has bought trillions of euros' worth of government bonds in the past decade to keep borrowing costs low when inflation was too low.
"Given the long list of spending needs, the tendency will be towards an increase in government debt," said Brzeski from ING. "This will then mean pressure on the ECB to intervene and do more quantitative easing if there is a sudden sell-off in the bond markets."