The European Central Bank has published Working Paper No. 3248, a research paper by Eurosystem authors that develops climate-augmented models to predict real per capita gross value added growth across 1,117 European Union regions from 2002 to 2022. The paper finds that adding climate data improves short-term predictions mainly for agriculture, with heat wave indicators providing the clearest gains, while improvements for the broader industrial sector are modest and manufacturing gains are limited. In simulations of extreme combined heat wave and drought conditions similar to 2022, agricultural annual growth falls by 1.9 to 7.6 percentage points in most regions, with an average loss of 4.54 percentage points, compared with average losses of 0.75 percentage points for industry and 0.11 percentage points for manufacturing. The analysis combines annual economic indicators with high-frequency Copernicus data covering heat waves, meteorological droughts, hydrological droughts and agricultural droughts, and tests linear models against Random Forest and XGBoost approaches. Climate information improves predictions only in the nonlinear machine learning models, not in the linear climate-augmented specifications, indicating that the economic effects of climate extremes operate through nonlinear channels. Heat waves are the most consistently important climate predictor across sectors, while drought effects vary by sector and timing. Agriculture is most exposed, especially in eastern Europe, while industry and manufacturing show more limited but still regionally uneven effects, with stronger impacts in eastern Europe and the Baltic states. The paper also finds that simpler annual aggregation of climate variables often performs at least as well as more complex feature-extraction methods.
European Central Bank2026-06-17
European Central Bank publishes working paper finding extreme heat and drought could cut regional EU agricultural growth by up to 7.6 percentage points
The European Central Bank published a working paper finding that climate data improves regional growth forecasts mainly for EU agriculture, especially when machine learning models capture heat wave effects. Simulations of 2022-like combined heat and drought conditions show the largest losses in agriculture, averaging 4.54 percentage points, with smaller average effects in industry and manufacturing. The paper is presented as the authors' research and not as the ECB's official view.