Extreme weather events such as heatwaves, flooding and wildfires could wipe as much off eurozone GDP in the next five years as the global financial crisis or the Covid-19 pandemic, a senior European Central Bank (ECB) official said on Wednesday.
A series of severe weather-related events could cause an almost 5% near-term drop in eurozone growth, based on the most extreme climate scenario devised by a group of more than 140 bank supervisors and regulators earlier this year, according to Livio Stracca, deputy director-general at the ECB.
“The peak negative effect on euro area GDP is almost 5%, which is the same order of magnitude as what we have seen in the global financial crisis and a little bit less than Covid-19,” said Stracca, who also chairs the Network for Greening the Financial System's workstream on scenario design and analysis.
The findings are based on a new set of tools designed by the NGFS, a group of central bankers and supervisors working to address climate-risk in the financial sector and economy.
The tools aim to help banks and companies understand how climate change may impact their businesses in the short term by testing out a series of climate-related scenarios.
The group found eurozone growth was most severely affected in a scenario known as “Disasters and Policy Stagnation” where heatwaves, droughts and wildfires in 2026 were followed by a combination of floods and storms in 2027.
Should the eurozone follow through with its net-zero transition policies, including its plan for a 55% reduction in greenhouse gas emissions by 2030, it could largely mitigate losses, another scenario found.
“Climate-related risks are an immediate concern for financial stability and economic growth,” Stracca and Bundesbank board member Sabine Mauderer said in a blog published by the ECB on Wednesday.
“The NGFS scenarios ... indicate that a globally co-ordinated net-zero effort would safeguard the euro area's economic interests over the next five years.”
The NGFS has already released a widely used set of climate scenarios, but this is the first time it has offered tools to assess the short-term and physical impacts.
Reuters
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