Extreme heat in Europe is becoming a structural economic risk
Extreme heat in Europe could become one of the biggest economic constraints facing the continent over the coming years. According to an analysis published by Allianz Trade, rising temperatures are increasingly emerging as a structural economic threat, with Europe particularly vulnerable to its impacts.
Heat stress events have increased sevenfold since the 1980s, while the average number of fatalities per event has risen fivefold. Birth and death registration systems, along with mortality monitoring, are far more advanced in Europe than in many parts of Africa and South Asia, where heat-related deaths remain significantly underreported. However, Europe also faces genuine structural vulnerabilities, including ageing populations, urban building stock designed to retain heat, and severely underdeveloped cooling infrastructure.
Extreme heat in Europe threatens economic competitiveness
The study highlights that elevated temperatures are not only an environmental and public health issue, they are also becoming a major challenge for European economic competitiveness. By 2030, Germany could experience output losses of up to 3% of GDP, placing it among the countries most heavily affected by the economic consequences of extreme heat.
According to Allianz Trade, higher temperatures have a direct impact on labour productivity. The analysis estimates that productivity declines by around 3% for every degree increase within the 30°C to 35°C range, measured against average hourly output recorded between 2014 and 2024 at constant purchasing power parity.
Wage adjustments tend to lag behind productivity losses. As a result, the immediate burden falls disproportionately on corporate profitability before gradually affecting household incomes and consumer spending. At the same time, energy costs also rise. For every additional degree, cooling-related expenses are expected to increase by approximately 1.2%.
The economic cost of extreme heat in Europe
Between 2026 and 2030, cumulative GDP losses could reach 5-7% in the most exposed economies. Estimated losses include:
- $240 billion for France
- $354 billion for Japan
- $147 billion for Italy
- $131 billion for Germany
- $120 billion for Spain
The impact extends beyond economic output and directly affects public finances. The study estimates that tax revenues could decline by around 0.7% annually, while Germany’s fiscal balance could deteriorate by approximately 0.9% of GDP per year. This would further constrain public investment capacity at a time when the German economy is already facing significant challenges.
Annual fiscal revenue losses are projected to reach 1.8% in France, 1.3% in both Italy and Spain, and 0.7% in Germany. Progressive tax systems amplify these effects because tax revenues tend to fall faster than economic output, increasing the fiscal burden beyond the nominal GDP loss.
Extreme heat in Europe hits southern regions hardest
The Allianz Trade analysis also reveals significant geographical differences in climate-related impacts. Southern Europe remains the region most exposed to heatwaves, while some traditionally hotter regions outside Europe have developed stronger adaptation mechanisms to cope with extreme temperatures.
According to Allianz Trade, the ability of economies to adapt to extreme heat will become a decisive factor in determining competitiveness over the coming years. Investments in resilient infrastructure, efficient cooling systems and new approaches to workplace organisation could make the difference between countries capable of limiting economic damage and those facing increasingly severe losses.