Extreme heat could cost German economy 112 billion euros by 2030, insurer warns

Repeated heatwaves could cost the German economy around 112 billion euros by 2030, with rising temperatures hitting both worker productivity and energy costs simultaneously, according to a report by credit insurer Allianz Trade. "Extreme heat is no longer a short-term weather phenomenon, but a structural economic shock," said Milo Bogaerts, Allianz Trade's head for Germany, Austria and Switzerland, according to a report by newswire dpa.

The report warns that the biggest damage lies ahead rather than in the present, as falling return expectations are already dampening investment – and with it future productivity and competitiveness.

As the profound impact of rising temperatures has become ever more apparent in recent years, climate change has increasingly become a mainstream economic and industrial policy concern, not just an environmental one. This is particularly true in Europe, where temperatures have risen twice as fast as the global average. 

The Allianz Trade report finds that productivity falls by around 3 percent for every degree above 30 degrees Celsius, while energy costs rise by roughly 1.2 percent per degree due to higher cooling demand. Public finances also take a hit: on average, heatwaves worsen the government's budget position by around 0.9 percent of gross domestic product (GDP) per year, the report says.

Germany sits in the European middle ground on heat exposure, according to Allianz Research climate economist Hazem Krichene – worse off than cooler northern countries like Ireland or Finland, but less exposed than southern European states such as Spain or Italy. Europe as a whole remains poorly prepared, Krichene said, noting that while around 90 percent of US households have air conditioning, the figure in Europe is just 19 percent, and many European buildings are designed to retain heat rather than release it.

Krichene called for faster action on heat adaptation, arguing that countries that move more quickly on infrastructure and protecting workers and businesses will gain a competitive advantage. "The green transformation and adaptation to climate change are now central questions of economic policy that go far beyond the environmental sphere," he said.