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Europe's heat wave pressures economies: poverty and productivity loss rise
Extreme heat affecting Western Europe breaks records in France and the UK, while a new study reveals that heat waves and drought increase poverty risk and reduce household income in Europe.
The extreme heat wave gripping Western Europe is putting increasing pressure on the continent's economies. The wave, which has broken temperature records particularly in France and the UK, is negatively affecting household incomes, corporate productivity, agricultural products, insurance costs, and public spending.
France's meteorological agency announced that 61 regions remain on red alert due to the heat wave, while 22 regions are on orange alert. As the weather continues to be oppressive across much of the country, temperatures generally range between 35 and 39 degrees Celsius, locally reaching 40 or 41 degrees in the shade from Auvergne and Burgundy to southern Ile-de-France and the Grand Est region.
The UK's meteorological agency reported that the heat wave has triggered a red alert for extreme heat in central and southern England and parts of Wales, and that a June temperature record is expected to be broken. The Dutch meteorological agency also declared a red alert for large parts of the country due to temperatures that could locally reach 40 degrees Celsius.
Heat and drought increase poverty risk
According to a Reuters report, the heat wave has caused school closures, slower train services, and power outages in thousands of homes in France, while prompting some farmers to harvest at night to avoid the hottest hours.
A study published in the journal Global Environmental Change showed that heat waves and drought increase the risk of poverty in Europe by about 1.1 percentage points, equivalent to an average of 5.6 million additional people over the 2004-2022 period. The study concluded that the combined occurrence of the two phenomena harms household income more than each occurring alone.
Climate Analytics, a non-profit organization that contributed to the study, states that the combination of heat and drought reduces average household income in Europe by about 3% compared to the level it would have been without these climate events. Losses are greater in the most affected regions, with the impact on income reaching 10% in Madrid, 8.8% in central Spain, and 9.4% in central Hungary.
According to the study, heat waves primarily hit low-income groups, as a larger share of these groups work in jobs such as agriculture, construction, field services, and transportation that cannot be moved to an air-conditioned office or done from home. Households in the poorest 20% were found to suffer 2.7 percentage points more income loss during periods when heat waves and drought occur together compared to the richest 20%.
Labor productivity declines
According to the European Commission's Joint Research Centre, heat reduces actual working hours even if companies do not officially suspend operations. Employee performance declines, longer breaks are needed, and the risk of heat stress, heat stroke, and heart conditions increases. These effects ultimately translate into lower output, lower wages, or higher costs for employers.
The centre estimates that by mid-century, 22 European regions could experience annual labor productivity losses exceeding 1% due to heat stress, a number that could rise to 107 regions by the 2080s. In the worst-case scenario, productivity losses could reach 6% in Spain's Murcia region, while parts of southern Europe could face losses of up to 4% of regional gross domestic product.
A recent OECD working paper based on company and weather data from 23 advanced economies found that an increase in high-temperature days and the occurrence of heat waves reduce labor productivity. The impact was noted to be greater in smaller and less productive companies, and to increase as the heat wave lengthens, humidity rises, and wind weakens.
Economic toll grows
According to the European Drought Observatory, drought intensified in Europe in late May 2026, with a prolonged heat wave affecting the Iberian Peninsula, the UK, France, the Alps, and Italy. Warning conditions persisted or became established in northeastern Europe, western Russia, and the UK.
Reuters reported that the current heat wave has caused power outages in France, while Bloomberg news agency reported that the wave is testing electricity grids and health services in Western Europe.
The European Environment Agency estimates that economic losses from extreme weather and climate events in the European Union between 1980 and 2024 amounted to approximately 822 billion euros, with more than 208 billion euros of that occurring in the 2021-2024 period alone. The agency stated that all of the last four years rank among the five years with the highest annual losses since 1980.
The European Environment Agency states that heat waves are responsible for about 95% of deaths related to extreme weather in Europe, and that climate events are putting pressure on health, nature, water and food supply, infrastructure, and the economy. The problem manifests itself in public budgets through emergency health costs, disaster compensation, infrastructure protection, and support for households and companies after heat waves and drought.
The EU Copernicus Climate Change Service's 2025 European State of the Climate report confirms that Europe is the fastest-warming continent in the world and that at least 95% of the continent experienced above-average temperatures in 2025. Climate Analytics research projects that if global warming is limited to 1.5 degrees Celsius, the impact on income will remain relatively limited, but under the path of current policies, the impact will expand significantly. According to the study, under the 1.5-degree scenario, average household income in Europe would fall by 7%, while if warming reaches 2.7 degrees Celsius by the end of the century, this rate would rise to 27%. The heaviest losses are expected in Greece, Spain, Romania, Bulgaria, and Cyprus.
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