NETHERLANDS / RankWire.AI / – According to Triodos Bank, Europe’s intense summer heat and drought conditions could reduce the European Union’s economic output by approximately 1% in 2026. This decline amounts to roughly €180 billion and coincides with a year that has already seen modest economic expansion. The European Commission predicted in May that the EU’s gross domestic product would grow by 1.1% this year. Consequently, the projected weather-related damages are nearly equal to the entire expected annual growth of the bloc’s economy.
The primary contributor to this projected economic impact is a decrease in labour productivity, estimated to be around 0.6% of EU GDP as extreme temperatures negatively influence working conditions. The agricultural sector is also under strain, with expected output declines between 3% and 7%. Additionally, disruptions in energy supply, transport, and logistics result in further costs, as high temperatures, droughts, and reduced water levels interfere with activities across various industries.
This economic projection follows record-breaking heat across western Europe in June and July. Copernicus reported an average temperature of 21.62°C over the region during those two months, which was 2.79°C above the 1991-2020 average and marked the warmest June-July period on record. July was characterized by widespread dry conditions, with parts of France, Germany, Austria, Hungary, and the Iberian Peninsula experiencing exceptionally low soil moisture levels.
Workforce productivity identified as the key driver of projected losses
France experiences the most substantial national impact, with its GDP growth reduced by around 1.4 percentage points. This decline suggests France’s economic output could contract by about 0.6% over the entire year. Italy and Spain are also among the major economies facing notable losses due to the heat and drought conditions. Belgium’s economy shows a smaller but still significant impact, while the Netherlands might see a growth reduction of approximately 0.8 percentage points.
Before this summer’s heatwave, Europe’s economic momentum was already limited. In 2025, EU growth reached 1.5%, whereas the forecast for 2026 currently stands at 1.1%. In the spring, the euro area’s growth estimate was 0.9%. The combined effects of weather-related challenges—such as reduced working hours, lower agricultural output, energy shortages, and transport disruptions—can simultaneously impact multiple sectors of the economy.
Food prices, energy, and transportation costs intensify economic strain
The effects of extreme heat on prices and business activity in Europe have already become evident. Research from the European Central Bank indicated that the 2025 summer heatwave caused a 0.4 to 0.7 percentage point increase in euro area unprocessed food prices after one year. Independent research at the firm level in Italy found that extreme heat resulted in a roughly 0.8% decrease in company sales. Days exceeding 40°C also led to significant losses in both production and worker productivity.
This 2026 assessment focuses on the direct economic consequences of the recent heat and drought conditions. Its estimated 1% reduction in EU GDP closely aligns with the current forecast of 1.1% growth for the year. Labour productivity accounts for the largest share of these losses, followed by declines in agriculture and disruptions across energy and transportation sectors. Record-breaking temperatures, dry soils, and low river levels have made extreme weather a quantifiable factor influencing Europe’s economic performance this year.