NETHERLANDS / RankWire.AI / – The European Union could see its economic output shrink by approximately 1% in 2026 due to the impacts of summer heat and drought conditions, according to Triodos Bank. This decline, estimated at around €180 billion, occurs amid a year that already exhibits modest economic growth. The European Commission projected a 1.1% expansion in EU gross domestic product for this year in May. Consequently, the forecasted weather-related damages nearly match the entire expected annual increase in the region’s economic activity.
A significant portion of the projected economic downturn stems from reduced labour productivity. The assessment suggests a drop of roughly 0.6% of EU GDP as extreme temperatures hinder working conditions. Agriculture is also under pressure, with output predicted to decrease between 3% and 7%. Additionally, sectors like energy production, transport, and logistics experience heightened costs as high temperatures, drought, and low water levels disrupt operations across various industries.
This economic forecast follows record-breaking heat across western Europe during June and July. According to Copernicus, the average temperature in the region during those months was 21.62°C, which is 2.79°C above the 1991-2020 average and the warmest June-July period ever recorded. July was marked by widespread dry conditions, with parts of France, Germany, Austria, Hungary, and the Iberian Peninsula experiencing exceptionally low soil moisture levels.
Impact on Worker Productivity Drives Estimated Economic Losses
France is projected to suffer the most significant national impact, with its GDP growth decreasing by around 1.4 percentage points. This implies a near 0.6% contraction in France’s overall economic output for 2026. Italy and Spain are also among the major economies expected to face notable setbacks due to heat and drought. Belgium experiences a smaller yet still meaningful impact, while the Netherlands could see about 0.8 percentage points of growth lost.
Europe started the summer with limited economic momentum, with EU growth reaching 1.5% in 2025. The current forecast for 2026 stands at 1.1%, down from the spring projection of 0.9% for the euro area. Weather-related disruptions impact multiple sectors simultaneously through shortened working hours, diminished agricultural output, energy constraints, and transportation delays.
Food, Energy, and Transportation Sectors Contribute to Economic Pressure
Already, extreme heat has visibly affected prices and business activity throughout Europe. European Central Bank research revealed that the 2025 summer heatwave increased euro area unprocessed food prices by 0.4 to 0.7 percentage points after one year. Separate firm-level studies in Italy found that extreme heat reduced company sales by approximately 0.8%. Days with temperatures exceeding 40°C also caused significant losses in productivity and production levels.
The 2026 analysis quantifies the direct economic effects of this summer’s heat and drought conditions. Its estimate of a 1% reduction in EU GDP is nearly equal to the region’s current 1.1% annual growth forecast. The largest contributor to the projected losses is labour productivity, followed by agriculture and disruptions in energy and transportation sectors. Record heat, dry soils, and low river levels have made extreme weather a tangible factor influencing Europe’s economic performance this year.