In Summary
- Europe’s 2026 heatwaves carry an estimated annual output cost of EUR113bn (USD128bn) across 30 countries, a substantial economic burden from one hazard alone. This corresponds to around 0.46% of their combined projected GDP, and roughly 60% of the global extreme-weather losses recorded in 2025. The estimate uses each country’s most intense five-day heat episode between June and August, adjusted for humidity and population exposure, to assess the effect on annual growth. Italy, Germany and France account for almost two-thirds of the estimated losses, while Cyprus faces the largest growth reduction, at 1.74 percentage points. Humidity helps explain why the highest temperatures do not always produce the greatest economic strain: Italy’s more humid heat episode is associated with a larger estimated growth loss than Hungary’s hotter but drier conditions.
- Europe was one of several regions hit hard by extreme weather in 2026, with a fuller picture of the year’s economic losses expected in early 2027. Major floods affected Madagascar, Malawi, Mozambique, South Africa, Zambia and Zimbabwe, while Tunisia and Morocco also suffered serious flooding. Indonesia faced an active wildfire season, and flooding along the Nepal–China border left estimated reconstruction needs of USD4–5bn. Peru declared two emergencies: one following February’s floods and another in July to prepare for rainfall associated with El Niño. Assessing the combined effects on GDP growth and inflation will require more complete data on the damage and disruption to economic activity.
- Allianz Research is launching the Allianz Climate Economics Report (ACE), an annual flagship examining how climate change affects economic growth and inflation. Each edition reviews the previous year, assesses current developments and considers the outlook for the year ahead. The analysis draws on ClimRad (Climate Data Radar), a proprietary platform developed by Allianz Research and Earthian AI. Alongside climate data and catastrophe loss records, ClimRad provides damage functions developed in-house to estimate how temperature changes, heat stress and drought affect GDP growth, and how temperature changes influence headline and food inflation. This allows ACE to examine costs that extend beyond damage to physical assets and insurance claims, including losses in production and pressures on household purchasing power. Readers can explore national climate data and test their own economic scenarios through the ClimRad platform.
- In 2025, climate risk became more geographically differentiated, with the largest physical shifts not always translating into the greatest current economic burden. Northern and Eastern Europe recorded some of the largest temperature anomalies, led by Norway at +3.74°C versus +1.38°C globally. To separate structural climate shifts from the severity of current conditions, the Allianz Climate Economics Report uses a Climate Change Score, measuring departures in temperature, heat, drought and precipitation from historical norms, and a Climate Stress Score, capturing current heat, drought and heavy rainfall. Nigeria, the Philippines, Malaysia, Brazil, Côte d’Ivoire, Morocco and Turkey rank high on both. Globally, extreme weather caused USD210bn in economic losses in 2025, down 32% from USD307bn in 2024 but still 20% above the 2000–2019 average. Measured against the size of each economy, the burden was equally uneven: the US recorded the largest absolute losses at USD118.5bn, equivalent to 0.4% of GDP, while Jamaica’s losses reached 39.4% of GDP. Losses were equivalent to 2.9% of GDP in Thailand and 0.8% in Portugal, four times its historical average.
- The disasters of 2025–2026 exposed a widening adaptation gap: countries with prevention systems, pre-arranged financing and clear response mechanisms were better positioned than those still relying mainly on post-disaster relief. Australia, Chile and Canada drew on established wildfire programs combining monitoring, community preparedness and investment before the fire season. Morocco’s flood response similarly benefited from earlier investment in warning systems and risk mapping, supported by a World Bank-backed resilience program receiving USD408mn since 2016. Honduras illustrates a more targeted model, using forecast-triggered financing to release assistance before impacts materialized. Elsewhere, the response remained more reactive: Texas strengthened warnings and protective infrastructure after flooding, while European initiatives expanded heat, wildfire and water-resilience policies, including an EIB water-resilience facility of EUR15bn for 2025–2027. By contrast, Mexico and Bolivia remained focused largely on relief and reconstruction, Indonesia on wildfire suppression and Argentina combined major emergency firefighting with cuts to permanent wildfire-management capacity. The 2025–2026 experience shows that resilience depends less on emergency spending after disaster strikes than on sustained prevention, pre-arranged financing and clear responsibility before it does.
- Looking ahead, a very strong El Niño is already forming and could cost the world USD451bn, with most of the damage landing in 2027. Expected to peak towards the end of 2026 and persist into early 2027, El Niño would add a temporary boost to human-induced warming. Our sensitivity analysis, calibrated on country temperature responses during the 2023–2024 El Niño episode, estimates a net output loss of USD451bn in 2027, equivalent to 0.24% of projected GDP across 144 economies. China, the US and India account for almost 60% of gross losses, at USD147bn, USD91bn and USD50bn, respectively, while South Korea and Indonesia face larger proportional declines of 0.51% and 0.41% of baseline GDP. For the EU-27, the net loss reaches USD24bn, or 0.09% of GDP. The shock would also reach households through prices: weighting country results by GDP at purchasing power parity gives average increases of 0.42 percentage points (pp) in headline inflation and 0.65pp in food inflation. The corresponding EU-27 increases are 0.31pp and 0.50pp. These results quantify temperature sensitivity only and exclude additional losses from floods, droughts, wildfires and other extreme events.