One of the most intense heat waves of recent years is being experienced by the economy, infrastructure and energy system in Europe.
In France, at least 18 people have died due to the heat, including two young children who were found in an overheated car. Temperatures broke all-time records in many areas, with Bordeaux recording 41.9 degrees Celsius and Poitiers 41.2 degrees, while in San Sebastián in northern Spain the mercury neared 40 degrees, more than double the season’s average.
French authorities have been forced to close schools or modify their opening hours, while in Britain forecasters are warning of a possible breaking of the June record temperature. At the same time, emergency services recorded dozens of cases of heat stroke and at least 13 drownings in two days, as thousands of citizens sought relief in seas and rivers.
Scientists attribute the phenomenon to an “Omega”-type atmospheric formation, which traps warm air masses from the Sahara over Europe. This system moves extremely slowly, preventing air renewal and prolonging extreme conditions. According to the World Meteorological Organization, Europe is warming at a rate more than twice the global average, which makes such extreme events more frequent.
Heatwaves in Europe and GDP
But the effects are not limited to public health, testing and increasing costs for health and insurance systems. A recent analysis by the European Central Bank showed that extreme heat waves significantly affect real GDP, inflation and industrial activity. The consequences are not the same for all countries, but industrial economies appear particularly vulnerable. Germany, due to its productive structure, records among the highest sensitivities to thermal shocks, while sectors such as power generation, construction, mining and the pharmaceutical industry are systematically affected.
Extreme heat is now emerging as a structural economic risk. According to a recent Allianz report, incidents of heat stress have increased sevenfold since the 1980s, while the number of deaths per event has increased fivefold. Europe is particularly vulnerable due to its aging population, high population concentration in cities with old buildings designed to retain heat and relatively low air conditioning penetration. On average, only 19% of European households have air conditioning, compared to about 90% in the United States.
The economic impact accelerates when temperatures exceed a critical threshold of around 30 degrees Celsius. Below this level, heating can reduce winter heating needs and have limited effects on productivity.
Above this point, however, the picture reverses. Output per worker is noticeably reduced as heat affects physical and mental performance, particularly in outdoor work and industrial facilities. At the same time, the consumption of electricity for cooling increases, burdening the operating costs of businesses at the very moment when productivity declines.
Workers in construction, agriculture, logistics and manufacturing become less productive as temperatures rise. This is likely to be one of the biggest financial costs.
Electricity consumption is skyrocketing due to air conditioning, increasing costs and straining networks. In countries where renewable generation is abundant, this can create unusual price fluctuations.
Transport, infrastructure, agriculture and tourism
Rail services in France and Belgium have already been disrupted by heat-related concerns for tracks and power cables. Extreme temperatures also increase road maintenance costs and can affect airport operations.
While the full impact is not yet known, prolonged heat is increasing risks to crop yields and livestock, particularly in Spain, Italy and southern France. This may affect food price inflation later in the year.
The result is mixed. Northern European destinations may benefit from warmer weather, but extreme heat in Mediterranean countries can discourage urban tourism, reduce outdoor activity and increase operating costs for hotels and resorts.
Serious long-term consequences
The long-term consequences may prove even more serious. In a scenario where European countries repeat the warmest years of the last decade by 2030, cumulative GDP losses could reach 5%-7% in the most exposed economies.
For France the losses are estimated at around 240 billion dollars, for Germany at 131 billion, for Italy at 147 billion and for Spain at 120 billion dollars.
Of particular concern is the fact that heat is hitting investment more than consumption. As expected returns on capital decline, firms curtail their investment plans, undermining future productive capacity. At the same time, the risk of stagflation is emerging, i.e. a combination of lower growth and higher inflation, a scenario that makes monetary policy particularly difficult.
The pressures are also transferred to public finances. Lower economic activity reduces tax revenues, while spending on health care, social protection and infrastructure rehabilitation increases. Analysts estimate that the budget balances of European countries could be burdened by about half a percentage point of GDP annually due to the effects of extreme heat.
The GDP paradox
At the same time, the heat also highlights a paradox of the energy transition. Clear skies and intense sunshine have dramatically increased solar power generation in many European countries, even leading to negative electricity prices in wholesale markets. In Spain and Portugal, the hours in which prices fell below zero recorded historical highs in the first quarter of 2026.
Negative prices occur when renewable generation significantly exceeds demand. However, the phenomenon does not automatically translate into lower bills for households. Instead, it reveals the weaknesses of the European electricity grid, which was designed for a different generation model and struggles to manage the large penetration of renewables.
Despite increased investment in recent years, network capacity and storage capabilities remain insufficient. The European Union has dramatically increased installations of battery storage systems, but experts estimate that a further tenfold increase in storage capacity is needed by the end of the decade to meet energy targets.
At the same time, the heat itself is curtailing certain forms of clean energy. Rising river temperatures are creating problems for cooling nuclear power plants, while reduced water flow is affecting hydroelectric production. At the same time, the “heat dome” phenomenon is associated with lower wind speeds, limiting wind production in countries such as Germany, France and Spain.
Even solar power is not completely immune to extreme heat. Although strong sunshine increases production, the efficiency of photovoltaic panels decreases when the temperature exceeds certain levels. For every degree above 25°C, the efficiency of the panels drops by about 0.4%-0.5%, reminding us that more sun does not necessarily mean more electricity.
This year’s heat wave thus acts as a warning for the future. It is not just an extreme weather event but a picture of the challenges that the European economy will face in the coming decades. From public health and productivity to public finances, energy security and the functioning of markets, extreme heat is gradually becoming one of the most important economic and social risk factors for Europe.
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