Heatwave putting the brakes on growth

Greece experienced an almost 1% GDP loss as a result of the consequences of climate change, such as heatwaves and natural disasters, from the beginning of May to August 4, according to Allianz Research. The fact that this number effectively “takes away” less than half of the growth that the Greek economy is predicted to experience this year makes it incredibly significant. Projections from the Greek government, the Bank of Greece, the European Commission and the International Monetary Fund peg the country’s growth rate for this year at 2.2% to 2.4%, excluding these expenses.

More specifically, as Allianz points out, the US, Europe, China and other Asian nations have recently suffered record high temperatures, which has highlighted the inherent risk of climate change and questioned the viability of the economy in the face of harsh temperatures. Heatwaves, droughts and fires will become more frequent and intense as a result of climate change, becoming the “new normal.” Allianz stressed that such occurrences have an impact on not just people and wildlife but also economies.

Natural disasters have significant indirect and direct negative economic consequences. Net macroeconomic losses are likely to be small for large, developed economies, as they are better able to cope with negative shocks on the production front (e.g. compensating for lost output with increased production elsewhere). Moreover, while the destruction of the capital stock affects GDP only slightly and more in the long run, the relief measures provided by governments appear immediately in the GDP measure. Indirect economic impacts are generally more significant.

Heat-affected workers reduce their working hours, and reduced productivity as a result of extreme temperatures is a well-documented phenomenon, Allianz points out, especially in poor countries that often have higher exposure (e.g. Africa, South Asia) and vulnerability (e.g. housing quality, air conditioning). The decisive factor for productivity losses is the number of days with excessive heat (usual measurement: days with temperatures above 32C). Official research suggests the ability to perform physical work is reduced by about 40% when temperatures reach 32C.

The impact of this year’s heatwave on GDP in the US, Southern Europe and China is estimated by Allianz as a first approximation and without accounting for the effect on agricultural production. The findings indicate that China has already lost 1.3% of GDP due to this year’s heatwave.