The Bank for International Settlements published a working paper assessing the macroeconomic implications of water scarcity, arguing that water stress could become a material constraint on production and a source of inflationary pressure that economists and central banks may need to monitor alongside climate change. Using panel regressions for 169 countries over 1990–2020, the authors find that higher water scarcity, measured as freshwater withdrawals relative to internal renewable resources, total renewable resources or available freshwater, is associated with lower gross domestic product growth and investment growth and higher consumer price inflation. A one standard deviation increase in water scarcity is associated with 0.12% to 0.16% lower GDP growth, 0.39% to 0.42% lower investment growth and 2.9% to 3.5% higher annual inflation, while water use efficiency is associated with higher GDP growth and lower inflation. The paper also reports sectoral links, including lower services shares and weaker growth in water-intensive manufacturing industries, and notes climate-projection scenarios pointing to more severe water stress by late-century in multiple regions.
Bank for International Settlements 2025-12-01
Bank for International Settlements paper links water scarcity to weaker growth and higher inflation
The Bank for International Settlements released a paper highlighting water scarcity as a macroeconomic constraint and inflationary pressure, urging economists and central banks to monitor it alongside climate change. Covering 169 countries from 1990 to 2020, the study links increased water scarcity to reduced GDP, investment growth, and higher inflation, while improved water use efficiency correlates with better economic outcomes. Sectoral impacts include diminished services shares and slower growth in water-intensive manufacturing, with projections indicating worsening water stress by the century's end.