It ceases to be a future threat and turns into an immediate economic risk for Europe. The increasingly frequent and intense heat waves not only affect public health and the environment, but are beginning to leave a deep imprint on the production, investments, energy consumption and public finances of the states.
A new study by Allianz Trade estimates that Europe’s biggest economies will face significant losses in production capacity over the next five years as extreme heat reduces labor efficiency, increases energy costs and weighs on government spending.
France at the top of losses
According to the report’s projections, France is the European country most at risk from the economic effects of high temperatures. Total losses to its economy could reach 209 billion euros by 2030.
Italy is next with estimated losses of €128 billion, while Germany and Spain could lose €114 billion and €104 billion respectively.
In some of the most exposed economies, the cumulative effect of extreme temperatures could lead to a loss of up to 7% of GDP by the end of the decade, corresponding to a prolonged economic slowdown.
The estimates are based on a scenario of a gradual increase in extremes between 2026 and 2030, with conditions approaching the warmest years recorded in the previous decade.
When every degree Celsius costs productivity
The biggest economic hit comes from reduced labor productivity.
Sectors such as construction, industry, transport and agricultural production are at the forefront of the impacts. Workers are forced to reduce their working hours or work at lower rates when temperatures exceed tolerable limits.
The analysis calculates that after 30 degrees Celsius productivity falls by about 3% for each additional degree of temperature. Physical strain, mental fatigue and reduced sleep quality translate into fewer hours of effective work.
Globally, the percentage of working hours lost due to heat stress is expected to increase significantly by 2030, confirming that the issue does not only concern the countries of the European South but the entire global economy.
Energy demand is skyrocketing
At the same time, heat dramatically increases electricity consumption.
Households, businesses and public services are turning en masse to air conditioners and cooling systems, resulting in electricity demand increasing by around 1.2% for every degree above 30°C.
The problem is made more complex because increased demand often coincides with constraints on energy production itself. Much of European electricity generation is still based on natural gas, coal and nuclear thermal power plants, which depend on water availability and efficient plant cooling.
France’s experience during the 2019 heatwave showed how vulnerable the system can become, as nuclear generation was curtailed due to cooling problems, causing pressure on the electricity market and rising prices.
A blow to investment and growth
The consequences are not limited to current economic activity. Allianz Trade estimates that .
When firms perceive that future returns on investment are diminishing due to increased operating costs and more frequent disruptions in production, they curtail their investment plans.
The study predicts that fixed capital investment in the worst-affected countries could fall by an average of 8%, depriving economies of a key tool to boost productivity and future growth.
The result is a vicious circle: lower investment leads to weaker growth, which in turn limits the ability to adapt to new climate conditions.
Fiscal pressures and deficit risks
The extreme heat is expected to put pressure on public finances as well.
Lower economic activity means lower tax revenues, while at the same time government spending on health care, social benefits, infrastructure rehabilitation and emergency response increases.
Tax revenue losses could reach 1.8% a year in France and around 1.3% in Italy and Spain.
The outlook for the countries of the European South is particularly worrying, as additional fiscal burdens may make compliance with European fiscal rules more difficult.
In France, where the deficit already remains high, additional costs related to climate adaptation could burden the budget by more than two percentage points of GDP.
Infrastructure under pressure
Heatwaves also affect basic infrastructure.
High temperatures cause damage to road networks, railway lines and engineering works, increasing maintenance costs and leading to disruption of transport services.
As extreme weather events become more frequent, the need for resilient infrastructure becomes strategically important for the competitiveness of economies.
Europe is not ready yet
Despite the growing debate on climate adaptation, in the face of the economic impacts of extreme heat.
Spain shows the best performance in protecting workers from high temperatures, while France stands out in the rules for energy and thermal shielding of buildings. However, no country combines adequate protection of workers, infrastructure, public finances and vulnerable households.
The biggest gap is found in the financing of adaptation measures. Most governments still spend resources primarily after disasters occur, rather than proactively investing in resilience.
Climate adaptation is becoming an economic necessity
The emerging picture is clear: heat waves are becoming a macroeconomic risk factor for Europe. The issue is no longer just about the environment or public health, but the overall functioning of economies.
The adaptation of buildings, the strengthening of energy networks, the protection of workers and the upgrading of infrastructure are gradually becoming conditions for economic stability. For the countries of the European South, which are already at the forefront of climate change, the decisions of the next five years may determine not only the resilience to heat waves but also the development prospects of the coming decades.
