NETHERLANDS / RankWire.AI / – According to Triodos Bank, Europe’s recent summer heatwave and drought conditions are expected to decrease the European Union’s economic output by approximately 1% in 2026. This projected decline translates to roughly €180 billion and comes at a time when the economy is already experiencing modest growth, with the European Commission having forecasted a 1.1% expansion of EU gross domestic product for this year back in May. Consequently, the weather-related damages are nearly equivalent to the entire anticipated annual increase in the bloc’s economic activity.
The primary factor driving the estimated economic impact is a significant decline in labour productivity, which is affected by extreme temperatures disrupting working conditions. The assessment indicates a productivity loss of about 0.6% of EU GDP, while agriculture is also under pressure, with output expected to decrease between 3% and 7%. Additionally, costs rise across sectors such as energy, transport, and logistics as high temperatures, droughts, and low water levels interfere with normal operations, exacerbating economic challenges.
This economic forecast follows record-setting heat across western Europe during June and July, with Copernicus reporting an average temperature of 21.62°C in the region over those two months. That figure surpasses the 1991-2020 average by 2.79°C and marks the warmest June-July period on record. July was also characterized by widespread dry conditions, and parts of France, Germany, Austria, Hungary, and the Iberian Peninsula experienced exceptionally low soil moisture levels.
Productivity of workers is the primary driver of projected losses
France is expected to face the most significant national economic impact, with GDP growth reduced by roughly 1.4 percentage points, which could result in a contraction of about 0.6% for the entire year. Italy and Spain are also among the major economies experiencing notable losses from the combined effects of heat and drought. Belgium’s impact is smaller but still relevant, and the Netherlands might see around 0.8 percentage points of growth lost due to the adverse conditions.
Europe entered the summer with limited economic momentum, with EU growth reaching 1.5% in 2025, and the current forecast for 2026 standing at 1.1%. The spring outlook for the euro area predicted a growth rate of 0.9%. The combined effects of weather phenomena can impact multiple economic sectors simultaneously through reduced working hours, decreased agricultural yields, constrained electricity supply, and disrupted transportation networks, all contributing to the overall economic slowdown.
Food, energy, and transportation sectors face additional strain
The effects of extreme heat are already visible in Europe’s prices and business activity. Research from the European Central Bank revealed that the 2025 summer heatwave increased euro area unprocessed food prices by between 0.4 and 0.7 percentage points after one year. Separate investigations at the firm level in Italy indicated that extreme heat caused approximately 0.8% reduction in company sales, and days with temperatures exceeding 40°C have led to considerable losses in productivity and manufacturing output.
The 2026 analysis assesses the direct economic consequences associated with this summer’s unprecedented heat and drought conditions, estimating a 1% reduction in EU GDP, which is close to the current 1.1% annual growth projection. Labour productivity constitutes the largest portion of this loss, followed by declines in agriculture and disruptions across energy and transportation sectors. The record-breaking heat, dry soils, and low river levels have made extreme weather a tangible factor influencing Europe’s economic performance this year.