NETHERLANDS / RankWire.AI / – According to Triodos Bank, Europe’s intense summer heat and prolonged drought conditions could reduce the European Union’s economic output by approximately 1% in 2026. This potential decline, roughly €180 billion, occurs amid a year already characterized by modest economic expansion. The European Commission had previously projected a 1.1% growth in EU gross domestic product for this year in May. The weather-related damages are nearly equivalent to the entire expected annual increase in the bloc’s economic output.
The primary contributor to this projected economic impact is a significant decrease in labour productivity. The analysis estimates that extreme temperatures impair working conditions, resulting in a productivity loss of about 0.6% of EU GDP. Agriculture is also affected, with output expected to fall between 3% and 7%. Furthermore, costs in energy production, transport and logistics sectors are likely to rise as high temperatures, drought, and reduced water levels disrupt operations across multiple industries.
This economic assessment comes after Europe experienced record-breaking heat during June and July. The Copernicus Climate Change Service reported an average temperature of 21.62°C across the region during these two months, surpassing the 1991-2020 average by 2.79°C and marking the hottest June-July on record. July was also characterized by widespread drought, with parts of France, Germany, Austria, Hungary, and the Iberian Peninsula experiencing exceptionally low soil moisture levels.
Impact on Worker Productivity Is the Main Driver of Losses
France is projected to experience the most significant national impact, with GDP growth decreasing by around 1.4 percentage points. This would translate into a contraction of roughly 0.6% in France’s economic output for the full year. Italy and Spain are also expected to face notable declines due to the heat and drought, while Belgium’s economy might see a smaller but still important downturn. The Netherlands could see growth reduce by approximately 0.8 percentage points.
Prior to this latest heat impact assessment, Europe’s economy was already showing limited momentum, with EU growth reaching 1.5% in 2025. The current forecast for 2026 stands at 1.1%, down from an earlier spring estimate of 0.9% for the euro area. Weather-related disruptions can affect various economic sectors simultaneously, leading to reduced working hours, lower agricultural productivity, energy shortages, and transportation delays.
Food, Energy and Transport Sectors Face Additional Strain
The effects of extreme heat are already evident in Europe’s prices and business activity. European Central Bank research indicates that the 2025 summer heatwave caused unprocessed food prices in the euro area to increase by 0.4 to 0.7 percentage points after a year. Separate research conducted at the company level in Italy shows that extreme heat reduced sales by approximately 0.8%. Days with temperatures exceeding 40°C have also caused significant drops in productivity and production levels.
The 2026 evaluation quantifies the direct economic consequences of this summer’s heat and drought, estimating a 1% reduction in EU GDP. This figure is close to the bloc’s current annual growth projection of 1.1%. The largest part of the losses stems from decreased labour productivity, followed by impacts on agriculture and disruptions in energy and transportation sectors. The combination of record heat, parched soils, and low river levels has made extreme weather a tangible factor influencing Europe’s economic health this year.