NETHERLANDS / RankWire.AI / – According to Triodos Bank, Europe’s intense summer heat and drought might reduce the European Union’s economic output by about 1% in 2026. This loss is roughly €180 billion and occurs amid modest economic growth. The European Commission forecasted in May that EU gross domestic product would grow 1.1% this year. The weather-related damage estimated is nearly equal to the entire expected annual increase in the bloc’s output.
Most of the economic impact stems from reduced labor productivity. The assessment suggests a productivity decline of approximately 0.6% of EU GDP as extreme temperatures hinder working conditions. Agriculture also faces declines, with output dropping between 3% and 7%. Additionally, energy production, transport, and logistics sectors face extra costs. High temperatures, drought, and low water levels disrupt activity in multiple industries.
This economic forecast follows record-breaking heat across western Europe in June and July. Copernicus reported an average temperature of 21.62°C during those months. This was 2.79°C above the 1991-2020 average and marked the warmest June-July period on record. July also experienced widespread drought, with parts of France, Germany, Austria, Hungary, and the Iberian Peninsula recording extremely low soil moisture levels.
Workforce productivity drives the projected losses
France faces the largest national impact, with GDP growth reduced by about 1.4 percentage points. This suggests a near 0.6% contraction in French economic output for the year. Italy and Spain are also among the major economies suffering notable losses from heat and drought. Belgium’s impact is smaller but still significant, while the Netherlands could see about 0.8 percentage points of growth lost.
Europe started the summer with limited economic momentum. EU growth reached 1.5% in 2025. The forecast for 2026 stands at 1.1%. In spring, the euro area forecast was 0.9%. Weather-related impacts can hit various sectors simultaneously—reducing working hours, weakening farm production, causing energy shortages, and disrupting transport systems.
Inflation in food, energy, and transportation adds to challenges
The heatwave has already affected prices and business activities in Europe. European Central Bank research shows that the 2025 summer heatwave increased euro area unprocessed food prices by 0.4 to 0.7 percentage points after a year. A separate study in Italy found that extreme heat reduced company sales by about 0.8%. Days with temperatures above 40°C caused significant losses in production and worker productivity.
The 2026 report evaluates the direct economic effects of this summer’s heat and drought. Its estimated 1% reduction in EU GDP is close to the current 1.1% annual growth forecast. Labor productivity accounts for the largest share of the losses, followed by agriculture and disruptions in energy and transportation. Record heat, dry soils, and low river levels have made extreme weather a tangible factor in Europe’s economic performance this year.