A severe heatwave sweeping across Europe is highlighting growing economic risks from extreme weather, with new research warning that rising temperatures are already cutting household incomes and widening inequality across the continent.
A study by Climate Analytics found that combined heat and drought events reduce average household incomes in Europe by nearly 3%, with significantly larger losses in the most affected regions.
The research also warns that under current global climate policies, average global warming could reach 2.7°C by 2100, which would see European household incomes fall by 27%. Limiting warming to 1.5°C, in line with the Paris Agreement target, would reduce the impact to about 7%.
Jessie Schleypen, senior climate change and development economist at Climate Analytics and lead author of the study, said the ongoing heatwave is already affecting livelihoods.
“The massive heatwave now sweeping across Europe is already threatening people’s health, livelihoods and ability to work. Where extreme heat coincides with drought, the damage can be much greater,” she said.
“Our research shows that these compound events amplify economic losses experienced directly by European households, and they will become more frequent as global warming increases.”
Based on data from 2004 to 2022, the study found that heatwaves alone reduce household incomes by around 0.7%, while droughts cut incomes by 1.8%. When both occur together, losses rise to nearly 3%, driven by lower labour productivity, health impacts, reduced food production and strain on water-dependent services such as transport and energy generation.
The effects are not evenly distributed across society.
“The poorest 20% will be affected the most, with incomes dropping 2% more than the rest of the population (4% vs 1.1-1.8%), further widening income inequality,” Schleypen said.
Regional disparities are also stark, with Madrid recording income losses of almost 10%, Central Hungary 9.4% and Central Spain 8.8% over the study period.
Looking ahead, the study estimates that 60 million people in Europe could be at risk of poverty under a 1.5°C warming scenario, rising to 127 million under a 2.7°C pathway.
Countries including Greece, Spain, Romania, Bulgaria and Cyprus are expected to be among the worst affected. At 2.7°C of warming, Spanish household incomes could fall by more than one-third, while Greek incomes could decline by more than half.
“As heat and drought conditions worsen with climate change, so too will the economic impact on Europe’s most vulnerable,” Schleypen said.
The study also highlights concerns over Europe’s preparedness for escalating climate impacts, noting that adaptation efforts have lagged behind scientific warnings for years.
It cited assessments from national climate bodies in the UK, France and Germany, all pointing to gaps between adaptation planning and implementation, particularly in managing heat-related risks.
Despite increasing recognition of the threat, researchers warn that practical measures to protect populations remain insufficient as extreme heat events become more frequent.
