NETHERLANDS / RankWire.AI / – Triodos Bank’s analysis indicates that extreme heatwaves and drought conditions across Europe might reduce the EU’s economic output by approximately 1% in 2026. This potential decline amounts to around €180 billion amid a year already characterized by sluggish growth. The European Commission had forecasted a 1.1% expansion for EU gross domestic product in 2026 in May, leaving little room between projected growth and the economic impacts of this summer’s severe weather events.
A significant portion of the projected economic damage stems from decreased productivity during extreme heat spells, accounting for roughly 0.6% of EU GDP. Agriculture faces notable setbacks, with output potentially dropping between 3% and 7% due to prolonged heat and dry conditions in key farming regions. Additionally, disruptions to energy generation, transport networks, and logistics contribute to the overall economic toll, as high temperatures and diminished water levels interfere with normal operations.
During summer, Western Europe experienced record-breaking temperatures. According to Copernicus, June and July together marked the warmest period on record for the region, with an average temperature of 21.62°C—2.79°C above the 1991-2020 average. July brought widespread dry conditions across much of western and central Europe, with parts of France, Germany, Austria, Hungary, and the Iberian Peninsula experiencing their lowest soil moisture levels since at least 1979.
France faces the highest potential GDP decline
France is expected to experience the largest national impact, with heat and drought potentially decreasing GDP growth by about 1.4 percentage points in 2026. This translates to an overall contraction of approximately 0.6%. Italy and Spain are also among the most vulnerable large economies, while Belgium is expected to see notable effects. The Netherlands may see a growth reduction of about 0.8 percentage points, with economic activity approaching stagnation for the year.
This heat-related economic forecast coincides with Europe’s ongoing slowdown. After reaching a 1.5% growth rate in 2025, the EU is projected to expand by 0.9% in 2026 according to the European Commission’s spring outlook. Extreme weather phenomena threaten to further strain the economy through lost working hours, decreased agricultural yields, and infrastructure disruptions. These impacts ripple across sectors, especially when low river levels hinder transportation or high temperatures lower electricity production and industrial output.
Weather Extremes Add Strain to Food and Industrial Sectors
Research links intense heatwaves with rising food prices and declining corporate performance. The European Central Bank found that the 2025 summer’s heatwave contributed an increase of 0.4 to 0.7 percentage points in euro area unprocessed food prices after a year. Separate firm-level studies in Italy revealed that extreme heat reduced company sales by roughly 0.8%. Days with temperatures exceeding 40°C caused significant drops in production and productivity, as per the findings.
The 2026 assessment emphasizes immediate economic impacts from this summer’s heat and drought rather than long-term climate projections. The estimated 1% reduction in EU GDP is close to the 1.1% growth forecast for the year. The largest losses are attributed to diminished labor productivity, with agriculture, energy, and transportation also incurring additional costs. With Western Europe experiencing record-breaking heat and widespread soil moisture deficits, these figures highlight how extreme weather is increasingly influencing the continent’s economic outlook for 2026.