The European Central Bank published an ECB Working Paper that analyses how heatwaves, coldwaves, floods and droughts affect economic activity in the four largest euro area economies, noting the findings do not represent ECB views. Using new indicators of extreme temperature and precipitation and country-specific structural Bayesian VAR models, the paper finds sizable and heterogeneous effects on real GDP, the Harmonised Index of Consumer Prices and sectoral activity over a 12-month horizon. Extremes are defined as days above the 95th percentile or below the 5th percentile of each country’s historical distribution from 1940 to 2023 and are linked to monthly macro and sector data for 1999 to 2023. The estimates point to Germany as most vulnerable to temperature extremes, with one day of extreme heat reducing real GDP by 0.1 percent on impact and reaching a trough of 0.4 percent after eight months, while France shows positive GDP effects from extreme heat of up to 0.5 percent after two months. Spain is identified as most exposed to precipitation extremes, with one day of extreme rainfall associated with a GDP decline of 0.4 percent after one month and a trough of 0.7 percent after five months, while Italy shows positive delayed effects from extreme rainfall, peaking at 0.8 percent after seven months. Across sectors, temperature extremes mainly affect industrial and energy-related activity, precipitation extremes weigh most on construction and mining, electricity and gas production typically rises during cold spells, and pharmaceuticals recur as particularly vulnerable to extreme heat; when effects are significant, output and prices often move in the same direction, consistent with demand-type dynamics at the aggregate level.
European Central Bank 2026-03-24
European Central Bank working paper finds extreme weather shocks have uneven one-year GDP and inflation effects across Germany, France, Italy and Spain
The European Central Bank released a working paper analyzing the impact of extreme weather events on economic activity in the four largest euro area economies, using structural Bayesian VAR models. The study finds Germany most vulnerable to temperature extremes, with significant GDP declines, while France experiences positive GDP effects from extreme heat. Spain is most affected by precipitation extremes, with notable GDP reductions, whereas Italy benefits from delayed positive effects.