EU economy could lose €180 billion due to heat and drought

Continued heatwaves and drought could shrink the European Union's economy by about 1% in 2026, equating to around €180 billion. This estimate comes from the Dutch Triodos Bank amid extreme weather that is already hitting agriculture, energy, and river transport in Europe.

The scale of potential losses is especially striking against the background of weak growth in the European economy. The European Commission expects real EU GDP to grow by about 1.1% in 2026. Thus, the economic impact of heat and drought calculated by Triodos is almost comparable in size to the expected annual growth.

Europe is experiencing its fifth heatwave of the summer. At the same time, precipitation deficits have led to a sharp decline in soil moisture and water levels in major rivers. The European Drought Observatory earlier reported critical conditions in several regions of France, Germany, Austria, Hungary, and Romania. The drought has also affected parts of Ukraine.

One of the most visible consequences is reduced crop yields. The European Commission's Joint Research Centre, in its July forecast, lowered yield estimates for winter crops in the EU by 1–4%. Forecasts for spring and summer crops also worsened: for grain maize and sunflower the decline was around 6–7%.

Plants suffer most where high temperatures combine with moisture deficits. This situation has developed in France, Germany, Austria, Czechia, Slovakia, Hungary, and Romania. Heat accelerates grain maturation, reduces biomass accumulation, and worsens flowering conditions, while water shortages limit farmers' ability to compensate for weather stress.

Problems extend far beyond agriculture. Low water levels in European rivers create difficulties for the energy sector, because water is used for cooling nuclear and thermal power plants, while its scarcity simultaneously reduces hydroelectric power generation.

A particularly serious situation has developed on the Danube. In Romania, record-low water levels forced the shutdown of both units of the country's only nuclear power plant, Cernavodă, which usually provides about a fifth of electricity production. Restrictions have also affected Hungary's nuclear energy. In France, heat and high river water temperatures have also caused individual reactors to be shut down or run at reduced capacity.

Falling river levels create additional costs for industry and logistics. Vessels on some stretches are forced to reduce loads to navigate shallow channels. This raises the cost of transporting fuel, raw materials, and industrial goods and increases pressure on companies that use river transport.

The European Commission notes that extreme heat is becoming an increasingly serious economic factor for Europe. In June alone, the western part of the continent experienced the hottest June on record: average temperatures were more than 3 degrees above the 1991–2020 climate norm.

At the same time, the €180 billion estimate does not mean that the EU economy has already suffered such losses. It is a calculation of the potential impact of current heat and drought on GDP for the year 2026. Actual damage will depend, among other things, on the duration of the drought, precipitation in the second half of the year, and the ability of energy, agriculture, and industry to adapt to water scarcity.

Based on materials from: Bloomberg, European Commission, Copernicus