European heatwave cuts incomes and threatens economic growth

Europe’s heatwave is putting pressure on economies across the continent, reducing household incomes, disrupting businesses, and increasing risks for agriculture and public finances. Several countries are facing record temperatures as authorities respond to growing health and economic concerns linked to extreme weather.

The European heatwave has hit France particularly hard. The country’s weather agency placed 61 departments under the highest red alert level, while 22 others remained under orange alerts. Temperatures ranged from 35°C to 39°C across much of the country, with some areas expected to exceed 40°C.

The United Kingdom also issued red heat warnings across parts of England and Wales as meteorologists forecast possible June temperature records. In the Netherlands, authorities declared red alerts in large areas where temperatures approached 40°C.

The extreme conditions have already disrupted daily life. Schools closed in several regions, rail services slowed operations, power outages affected thousands of households in France, and farmers shifted harvesting activities to nighttime hours to avoid dangerous daytime heat.

Research shows the economic effects extend well beyond temporary disruptions. A study published in Global Environmental Change found that heatwaves combined with drought increased poverty risks across Europe by approximately 1.1 percentage points between 2004 and 2022. Researchers estimated that around 5.6 million additional people experienced poverty during that period because of these climate conditions.

The study concluded that the combination of drought and extreme heat causes more severe financial damage than either event alone. Researchers from Climate Analytics estimated that average household incomes across Europe declined by around 3% as a result of these conditions.

Some regions experienced far greater losses. Household incomes fell by roughly 10% in Madrid, 9.4% in central Hungary, and 8.8% in central Spain. Lower-income workers faced the greatest impact because many work in agriculture, construction, transport, and other outdoor sectors where remote work and climate-controlled environments are not available.

According to the study, the poorest 20% of households suffered income losses that were 2.7 percentage points higher than those experienced by the wealthiest 20% when drought and heatwaves occurred simultaneously.

Extreme temperatures also reduce workplace productivity. Workers often require more frequent breaks and slower work schedules to avoid heat-related illnesses. These adjustments reduce output and increase costs for employers.

The European Commission’s Joint Research Centre estimates that by mid-century, 22 European regions could lose more than 1% of annual labor productivity because of heat stress. By the 2080s, the number of affected regions could rise to 107. Under a severe climate scenario, Spain’s Murcia region could lose up to 6% of labor productivity, while several areas in southern Europe could experience declines of up to 4% in regional economic output.

Additional evidence from an Organisation for Economic Co-operation and Development working paper showed that more frequent hot days and longer heatwaves reduce labor productivity across 23 advanced economies. Smaller and less productive companies appear especially vulnerable. Productivity losses become even more pronounced when high humidity and low wind conditions accompany extreme temperatures.

Agriculture faces increasing pressure as drought conditions expand across Europe. The European Drought Observatory reported worsening drought conditions in late May after prolonged heat affected Spain, Portugal, France, the United Kingdom, Italy, and Alpine regions.

The European Commission’s Joint Research Centre reported below-average soil moisture and river flow levels in several areas, affecting vegetation and crop production. While some countries may achieve above-average harvests, others are expected to record weaker yields.

The financial cost of climate-related disasters continues to rise. Recent heatwaves have strained electricity networks and healthcare systems across Western Europe. The European Environment Agency estimates that weather and climate-related disasters caused economic losses of approximately €822 billion across the European Union between 1980 and 2024. More than €208 billion of those losses occurred between 2021 and 2024.

The agency also reports that heatwaves account for roughly 95% of weather-related deaths in Europe. Rising temperatures are increasing pressure on healthcare systems, water resources, food production, infrastructure, and government budgets through emergency response spending and compensation programs.

The Copernicus Climate Change Service reports that Europe remains the fastest-warming continent. At least 95% of the region experienced above-average temperatures during 2025.

Climate Analytics warns that future economic losses will depend heavily on global warming levels. If warming is limited to 1.5°C, average household incomes in Europe could decline by around 7% by the end of the century. Under current policy trajectories that could lead to 2.7°C of warming, average household incomes may fall by as much as 27%, with Greece, Spain, Romania, Bulgaria, and Cyprus facing some of the largest losses.