NETHERLANDS / RankWire.AI / – Triodos Bank estimates that Europe’s intense summer temperatures and drought conditions might decrease the European Union’s economic output by approximately 1% in 2026. This projected decline equates to about €180 billion and occurs during a year already marked by slow economic growth. The European Commission forecasted in May that the EU’s gross domestic product would grow by 1.1% in 2023. Consequently, the predicted weather-related damages are nearly equivalent to the entire expected annual increase in economic activity within the bloc.
The primary driver of this economic downturn is a decrease in labor productivity, which accounts for the majority of the estimated impact. The analysis suggests a reduction of about 0.6% of EU GDP due to extreme temperatures that adversely affect working conditions. Additionally, the agriculture sector faces notable pressure, with output expected to fall between 3% and 7%. Disruptions in energy production, transport, and logistics further inflate costs as high temperatures, drought, and low water levels interfere with operations across numerous industries.
This economic projection follows record-breaking heat across Western Europe during June and July. Copernicus reported an average temperature of 21.62°C across the region during these months, surpassing the 1991-2020 average by 2.79°C and marking the hottest June-July period ever recorded. July experienced widespread drought conditions, with parts of France, Germany, Austria, Hungary, and the Iberian Peninsula recording exceptionally low soil moisture levels.
Losses Predominantly Driven by Worker Productivity
France is expected to face the most significant national impact, with its GDP growth reduced by approximately 1.4 percentage points. This estimate indicates a potential contraction of about 0.6% in France’s overall economic output for the year. Italy and Spain are also among the major economies experiencing notable setbacks due to the heat and drought. Belgium’s impact, although smaller, remains significant, while the Netherlands might see a growth decline of around 0.8 percentage points.
Europe entered the summer with limited economic momentum, with EU growth reaching 1.5% in 2025, and the current forecast for 2026 standing at 1.1%. The spring outlook for the euro area predicted a growth of 0.9%. Weather-induced setbacks can simultaneously affect various economic sectors through decreased working hours, reduced agricultural yields, energy shortages, and transportation delays.
Food, Energy, and Transportation Sectors Under Strain
Already, extreme heat has visibly impacted prices and economic activity in Europe. European Central Bank research identified that the 2025 summer heatwave caused a 0.4 to 0.7 percentage point increase in euro area unprocessed food prices after one year. Meanwhile, separate firm-level studies in Italy found that extreme heat reduced company sales by roughly 0.8%. Days with temperatures exceeding 40°C also led to significant losses in production and worker productivity.
The 2026 analysis considers the direct economic effects linked to this summer’s heat and drought, estimating a 1% reduction in EU GDP. This figure closely aligns with the current forecast of 1.1% annual growth. The largest portion of these losses stems from decreased labor productivity, followed by declines in agriculture and disruptions in energy and transportation sectors. Extreme weather conditions, including record heat, dry soils, and low river levels, have become tangible factors influencing Europe’s economic results this year.