Western Europe is experiencing severe heatwaves, disrupting daily life in many countries. On June 23, France recorded a national average temperature that broke records, with some areas exceeding 44 degrees Celsius. Spain's meteorological agency, AEMET, reported temperatures in the southern region of Andujar surpassed 45 degrees Celsius on the same day.
Hundreds of schools in England had to close or shorten class hours. Twenty-three countries issued emergency health warnings, with Germany, France, Spain, Switzerland, and Luxembourg facing the most severe risks.
"Extreme heat is becoming a structural economic risk. Europe is a particularly vulnerable region," stated Allianz Trade, a trade credit insurance company within the Allianz Group, as the continent experienced its second heatwave this year.
Analysts highlight several disadvantages for Europe: an aging population, dense urban areas with many buildings not designed to withstand extreme temperatures. Only 19% of households in the region have air conditioning, compared to 90% in the United States.
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Guests use umbrellas to shield from the sun while watching an outdoor fashion show in Milan on 22/6. Photo: AP
Heatwaves are occurring more frequently here, as Europe warms faster than other regions globally. Many scientists attribute the increase in extreme weather events to human activity.
"France is operating in a sluggish state. That certainly disrupts work and results in less work being completed," remarked Patrick Martin, President of Medef, France's largest employer organization, in a recent interview on BFM television.
Allianz Trade indicates that if temperatures exceed 30 degrees Celsius, losses in labor productivity will accelerate. According to AFP calculations, over 100 million people in Europe endured temperatures above 35 degrees Celsius on June 25. Nearly two-thirds of Europe's population lives in areas with temperatures above 30 degrees Celsius.
In an article published on its website last year, the European Central Bank (ECB) noted that heatwaves during spring, autumn, and winter can boost economic activity, especially in construction, agriculture, and outdoor dining. "However, summer heatwaves reduce economic activity due to limited outdoor physical activity," the ECB stated.
Declining labor productivity, the need to redirect investment towards climate change adaptation, and rising energy prices all contribute to a reduction in economic activity across Europe. ECB research shows that summer heatwaves decrease economic activity by approximately 1% in affected areas.
Contrary to the traditional view that these are merely temporary disruptions, the ECB observed that "the decline in output is prolonged and even worsens, reaching 1,5% after two years." Emmanuel Moulin, the new Governor of the French Central Bank, also recently told France Inter radio: "Clearly, heat has a negative impact on medium-term growth."
Extreme heat can drive up energy prices due to increased demand for air conditioning. This can also lead to higher food prices and inflation in the medium term, by reducing crop yields and disrupting supply chains.
The ECB estimated that the 2022 drought increased food prices in Europe by 0,7 percentage points. Olive production was severely affected, causing olive oil prices to surge. The agency is concerned that climate change is linked to rising food prices, complicating inflation forecasts.
"Without a rapid transition to a development model adapted to climate change and carbon neutrality, these phenomena risk becoming a structural drag on the economy in the long term," commented Hazem Krichene, a climate and sustainable development expert at Allianz.
Allianz Trade presented a hypothetical scenario where the five hottest years in each European country between 2014 and 2024 repeat between now and 2030. In this case, Europe's GDP is projected to fall by 5-7%. For instance, Germany's GDP could lose 240 billion USD, Italy's 147 billion USD, France's 131 billion USD, and Spain's 120 billion USD.
Tax revenue will also be affected. In France, budget revenue is forecast to decrease by approximately 1,8%, while spending on infrastructure and healthcare increases. This could worsen budget deficits and inflated public debt in many European countries, especially as their borrowing capacity is limited.
Ha Thu (according to AFP)
