NETHERLANDS / RankWire.AI / – The economic output of the European Union could decline by approximately 1% in 2026 as a result of intense summer heat and prolonged drought conditions, according to Triodos Bank. This estimated decrease amounts to about €180 billion, occurring amidst a year of already modest growth. The European Commission projected a 1.1% expansion in EU gross domestic product for 2023 in May, making the weather-related damages nearly equal to the total expected annual growth.
The primary driver behind this forecasted economic downturn is a significant reduction in labour productivity, which is estimated to account for around 0.6% of EU GDP, as extreme temperatures negatively impact working conditions. Agriculture is also expected to suffer, with output declines estimated between 3% and 7%. Additional costs stem from disruptions in energy production, transport, and logistics sectors, as high temperatures, drought, and reduced water levels impair activity across multiple industries.
This economic projection is based on the record-breaking heat experienced in western Europe during June and July. According to Copernicus, the average regional temperature during those months was 21.62°C, which is 2.79°C above the 1991-2020 average, marking the hottest June-July period ever recorded. July was characterized by widespread drought, with parts of France, Germany, Austria, Hungary, and the Iberian Peninsula experiencing exceptionally low soil moisture levels.
Impact on workers’ productivity drives the projected losses
France is expected to experience the most substantial national economic impact, with GDP growth reduced by around 1.4 percentage points. This decline suggests a potential contraction of approximately 0.6% in France’s overall economic output for the full year. Italy and Spain are also among the major economies facing notable losses due to heat and drought. Meanwhile, Belgium’s economy could experience a smaller but still significant impact, and the Netherlands might see roughly 0.8 percentage points of growth lost.
At the start of summer, Europe’s economic momentum was already limited, with EU growth reaching 1.5% in 2025, and the forecast for 2026 standing at 1.1%. The spring outlook for the euro area projected growth at 0.9%. Weather-related disruptions—such as reduced working hours, lower agricultural yields, energy supply constraints, and transport disruptions—could hit multiple sectors simultaneously, contributing to the overall economic impact.
Food prices, energy, and transportation face mounting pressure
The effects of extreme heat are already evident in Europe’s market prices and business activity. Research from the European Central Bank indicates that the 2025 summer heatwave pushed euro area unprocessed food prices up by 0.4 to 0.7 percentage points after one year. Additionally, separate firm-level studies in Italy reveal that extreme heat reduced company sales by approximately 0.8%. Days with temperatures exceeding 40°C have also caused considerable losses in production and worker productivity.
The 2026 assessment focuses on the direct economic consequences linked to this summer’s heat and drought conditions. The projected 1% decrease in EU GDP closely aligns with the current forecast of 1.1% annual growth. Labour productivity is identified as the largest contributor to these losses, followed by agriculture and disruptions in energy and transport sectors. The combined effects of record-breaking heat, parched soils, and low river levels have made extreme weather a tangible factor influencing Europe’s economic performance this year.