NETHERLANDS / RankWire.AI / – According to Triodos Bank, Europe’s intense summer temperatures and drought conditions could reduce the European Union’s GDP by approximately 1% in 2026. This decline, roughly €180 billion, occurs amid a year of relatively sluggish economic expansion. The European Commission forecasted in May that the EU’s gross domestic product would grow by 1.1% this year. The projected weather-related damages nearly match the entire expected annual increase in output for the bloc.
The primary driver of this projected economic impact is a decrease in labor productivity, estimated at about 0.6% of EU GDP due to the adverse effects of extreme heat on working conditions. Agriculture is also affected, with output declines estimated between 3% and 7%. Additionally, high temperatures, drought, and low water levels are disrupting energy production, transport, and logistics, leading to further costs across multiple sectors.
This economic assessment follows record heat levels experienced across western Europe in June and July. Copernicus reported an average temperature of 21.62°C for those months, surpassing the 1991-2020 average by 2.79°C and making it the warmest June-July period on record. July also brought widespread drought, with parts of France, Germany, Austria, Hungary, and the Iberian Peninsula experiencing exceptionally low soil moisture.
Labor productivity as the main factor behind projected losses
France faces the most significant national impact, with a decline of approximately 1.4 percentage points in GDP growth, potentially translating into a 0.6% contraction for the year. Italy and Spain are also among the major economies expected to see notable losses due to heat and drought. Belgium’s economy will experience a smaller yet still meaningful impact, while the Netherlands could see growth decrease by about 0.8 percentage points.
Europe started the summer with limited economic momentum, with EU growth reaching 1.5% in 2025 and the current 2026 forecast at 1.1%. The spring outlook for the euro area predicted a 0.9% growth rate. Weather-related disruptions—such as reduced working hours, lower agricultural yields, energy constraints, and transport interruptions—are likely to affect multiple sectors simultaneously.
Impact on food, energy, and transportation sectors amplifies economic pressures
Extreme heat has already affected prices and business activity in Europe. The European Central Bank found that the 2025 summer heatwave increased euro area unprocessed food prices by 0.4 to 0.7 percentage points after a year. Separate research in Italy indicated that extreme heat reduced company sales by about 0.8%. Days exceeding 40°C have also caused significant losses in production and worker productivity.
The 2026 report estimates the direct economic impacts from this summer’s heat and drought. Its projected 1% decrease in EU GDP is close to the current 1.1% annual growth forecast. Labor productivity remains the biggest contributor to these losses, followed by agriculture and disruptions within energy and transportation. Record-breaking heat, drought conditions, and low river levels have become tangible factors influencing Europe’s economic performance this year.