Has the heatwave been driving you nuts?

13 July 2025

By Miles Parker

With a hot and sticky start to July in Frankfurt, sleep has been difficult. My daughter has been a bit grumpy. As have I. Those are just the minor personal inconveniences caused by the heat. And one might be tempted to keep it on that level as the media often do, with pictures of people having fun at the beach or enjoying a splash of water in the park. But heat can have significant economic effects which differ widely across regions. In fact, heat kills. The 2003 summer heatwave is estimated to have killed some 70,000 people in Europe. This most recent heatwave killed around 30 people in Frankfurt alone.

Beyond this appalling human toll, heatwaves also meaningfully affect the economy. This blog looks at recent ECB research estimating the size of those effects. It finds that these events substantially reduce economic activity in affected regions and increase food prices.

A prolonged impact on economic activity

The question of when heatwaves occur greatly determines their economic impact. Heatwaves occurring in spring, autumn and winter can boost economic activity. Construction activity, crop growth and outdoor dining are supported by unusually warm temperatures in those seasons. By contrast, heatwaves during the already warmer summers reduce economic activity, as physical exertion outdoors becomes increasingly impaired.

Recent ECB research finds a substantial negative effect of summer heatwaves on regional activity of around 1 percent (Chart 1). More startling, the reduction in output is prolonged and even intensifies, reaching a trough of 1.5 percent lower after two years. The traditional view of extreme weather events causing temporary disruption followed by a period of recovery is not well supported by these findings. Indeed, the same research finds that regional output is 3 percent lower four years after a drought. And it is 2.8 percent lower four years after a flood.^[1]

Chart 1

Impact of summer heatwaves on regional output

Subtitle

Percent

Looking more closely at how regional economies react to a heatwave, we find evidence of lower agricultural production, particularly in the near term. Service sector activity is lower over the medium term. At the same time, we uncover a large increase in investment and the capital stock over the medium term, particularly in relatively hotter regions. Unusually, this higher capital stock does not lead to higher output, as labour productivity falls by up to 10 percent in these regions. That is consistent with large investment in adaptation capital (for example air conditioning), which is less productive overall than other types of capital. There is an opportunity cost: while adaptation helps protect from the worst effects of climate extremes, it comes at the cost of reducing investment in new technologies that could improve productivity even in normal times.^[2]

The estimates in Chart 1 are only for isolated heatwaves. We exclude from the analysis any region that over the same period either suffered from another heatwave or from a flood or drought. Given heatwaves are occurring more frequently and can take place at the same time as droughts and wildfires, the numbers here likely underestimate the full economic impact of such events -unfortunately.

Higher food prices and higher inflation uncertainty

Naturally, central banks care about how heatwaves influence inflationary pressures in the economy. As with output, the effect of heatwaves on inflation differs by season. Warmer winters, for example, lower energy prices. Research in this area is relatively new, but there is a strong consensus that summer heatwaves increase food prices. ECB research estimates that the extreme summer heat in 2022 increased food prices in Europe by 0.7 percentage points. In recent years, extreme weather has contributed to substantial increases in the commodity prices of vital foodstuffs such as olive oil, cocoa and coffee.^[3]

Yet, the impact on inflation overall is less certain. That is because climate events are not typical negative supply shocks that lower output and increase prices. They also exhibit elements of negative demand shocks, which lower both output and prices. In some cases, non-food prices can be lower following summer heatwaves. Heightened uncertainty, inflation volatility and shifts in relative prices make it harder for central banks to distinguish between temporary and permanent shocks and thereby pose challenges to macroeconomic forecasting.

Prospects in a warming world

Just as when heatwaves occur matters for their economic effects, so does where. The severity of output losses is much greater in regions that have historically been hotter. In these regions, the higher-than-normal heat is more likely to cross critical thresholds for human physical activity. In these situations, it is simply too hot to go about everyday life – let alone work. And global warming means that over time the number of European regions in the more-affected group will increase. A useful rule of thumb is that the hottest European summer temperatures tend to rise by up to double the global average increase.^[4] The 1.5°C Paris Agreement aim is consistent with 3°C hotter summer days. The roughly 3°C warming projected under current policies therefore could mean up to 6°C hotter summer days by the end of the current century. Taking into account projections of future climate, a heatwave equivalent to that in 2022 could add as much as 1.8 percentage points to food price inflation by 2060.^[5] So, in short, heatwaves are likely to have a much more pronounced impact on the economy and prices in the future than they have until now.

In the meantime, enjoy your summer. Have fun at the beach! Above all, try to not be grumpy: as global warming continues, 2025 will be one of the cooler summers of the rest of your life.

The views expressed in each blog entry are those of the author(s) and do not necessarily represent the views of the European Central Bank and the Eurosystem.

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