Severe weather disasters: How extreme weather is impacting Europe's economies

Summer is over, and many people in this country feel that this summer hasn't really been a summer at all: There are complaints about too few days of swimming or about rainy days in July and August.

However, regions in Southern Europe in particular experienced enormous heat waves, along with other extreme weather events such as droughts and floods. Around a quarter of EU regions were affected by such extreme weather this summer, according to a study by the University of Mannheim and the European Central Bank (ECB).

The researchers note that this also has enormous economic consequences: This summer's extreme weather events are leading to a decline in gross value added in the affected regions by approximately 43 billion euros – this year alone. According to the study's estimates, gross value added will be 126 billion euros lower by 2029 than it would have been without these extreme weather events. For the study, the researchers used weather data from June to August 2025, but only considered the effects of droughts, heat, and floods.

There are various reasons for the enormous economic consequences. The study considers both direct and indirect costs. Floods, for example, directly damage infrastructure and buildings, as the Ahr Valley is a case in point. Droughts primarily impact agriculture when harvests fail. Indirect costs arise, for example, from heat: This leads to lower productivity, for example in the construction and hospitality industries.

Spain, Italy, and France, which is already strapped for cash due to its difficult budget situation, are particularly affected. Gross value added in each of these three countries could decline by between €34 and €35 ​​billion by 2029. "These are conservative estimates," explains Miles Parker, ECB economist and co-author of the study. The actual costs may exceed these figures.

Forest fires were not taken into account due to a lack of data. According to the study, these burned approximately one million hectares within the European Union, especially in July and August—almost four times the size of Saarland. Hail and storm events were also excluded due to a lack of data. The impact on food prices was also not taken into account. According to Parker, heat waves, for example, can lead to lower economic activity. This could also have negative consequences for the tax authorities: lower tax revenues, higher expenditures on citizen's income.

Although the economic consequences in Northern and Central European countries such as Denmark, Sweden, and Germany are significantly less severe than in Southern Europe, the study nevertheless shows that extreme weather events, especially flooding, are more frequent and severe there as well. The German economy can expect a reduction in gross value added of around €2.5 billion by the end of 2029. This year, flooding primarily affected Northern Germany.

Serish Usman, co-author of the study and postdoctoral researcher at the Chair of Business Administration and Corporate Governance at the University of Mannheim, explains in the press release: "The true costs of extreme weather events are only gradually becoming apparent, as these events affect people's lives and livelihoods through a variety of channels that go beyond the immediate impacts."

What makes this study unique is that, for the first time, the economic consequences are also being measured using current weather data. The researchers combine this with historical data and the impacts on economic development from a previous study to estimate current economic damage. Parker explains that the two key advantages of their approach are that it provides current data and that it takes into account gross value added as a whole—thus taking into account not only direct damage, but also indirect damage. Heat, for example, doesn't cause much direct damage, but it does cause indirect damage, explains the ECB economist.

The costs of extreme weather events are enormous. The study authors warn that doing nothing is more expensive than taking climate adaptation measures. The study shows that extreme weather is already affecting current economic development, not just future ones.

The authors hope that the study will also encourage policymakers to respond accordingly. "By assessing impacts in a timely manner, policymakers can target their support and adapt strategies while the consequences of extreme events are still unfolding," says co-author Usman.

Measures can include adapting to the effects of climate change. For example, it's important to insure against damage caused by extreme weather, explains Parker. "Research has shown that insurance helps with rapid economic recovery," says Parker. However, there are significant differences between different European countries. In some countries, according to the European Environment Agency, less than five percent of direct damage is insured, while in a few, more than 50 percent is insured. In Germany, the figure is between 20 and 35 percent.

However, co-author Parker argues that "adaptation measures are limited—we cannot maneuver our way out of climate change with adaptation measures alone." He emphasizes that the only way to prevent extreme weather events from occurring more frequently is to achieve the carbon neutrality target.