Europe faces economic 'doom loop' as heatwaves erase growth

The analysis estimates that this summer’s record-breaking temperatures have cost the European Union approximately €180 billion, a figure sufficient to wipe out the bloc's total forecasted growth for the year. Economists Hans Stegeman, Joeri de Wilde, and Ernst Hobma argue that Brussels is compounding the crisis by diluting the Emission Trading System (ETS). Despite the system's success in cutting industrial emissions by 50 percent since 2005, national governments and industry lobbyists successfully pushed on July 17 to soften rules intended to curb pollution.

This retreat in policy coincides with unprecedented environmental degradation. By July 30, wildfires had scorched over 434,976 hectares of land across the EU, while heat-related deaths reached an estimated 25,000. Productivity losses in sectors like construction and agriculture account for the majority of the €180 billion hit. France has been hit particularly hard, with growth projections falling into negative territory, while the Netherlands faces near-zero growth.

The bank warns that by prioritizing immediate economic output over climate mitigation, policymakers are ensuring that future heatwaves start from a hotter, more expensive baseline. Without a shift in strategy, these recurring climate shocks will continue to erode the foundations of the European economy, turning temporary bruises into permanent structural decline.