Hot is gonna pass, we try to convince ourselves every summer when the heat starts. Only periods of extreme heat are getting more frequent and more intense. According to the new report by Allianz Research with title «Too hot to grow», heats develop into a permanent economic risk threatening productivity, investment and public finances throughout Europe. The Greek economy, like other Southern European countries, is one of the most exposed.
The data collected by the report are impressive in their scale. From the 1980s to the present, recorded heat waves worldwide have doubled seven times, while the average number of deaths per episode has doubled five times. — from 244 dead per incident in the 1980s to 1,222 in 2020-2024.
Europe pays a disproportionately high price. Russia, Italy, France, Spain and Germany are jointly responsible for 68% of recorded deaths worldwide from heat waves. Greece accounts for 3% of total.
Europe's most vulnerable to heat
A first explanation for the «overrepresentation» Europe’s victims of heat are that developed economies have much better demographic statistics methods than developing economies. For example, in EU countries there is a systematic record of excessive mortality related to extreme heat. Instead, in countries in Africa and South Asia, most deaths from heat pass «under radar».
But there are also objective reasons why Europe is more vulnerable to high temperatures. The old continent has infrastructure designed for cold, not heat. Only 19% of households have air conditioning, compared to 90% in the US. Accordingly, most buildings are constructed to contain heat. At the same time, ageing the population and dense urban construction increase the risk of heat stress in heat periods.
How heat translates into financial damage
The report identifies a critical risk threshold at 30 degrees Celsius. Below this limit, higher temperatures can have a neutral or even slightly positive effect on the economy, as they reduce heating costs. Above this limit, however, the image is abruptly reversed.
For each additional grade above 30°C and up to 35°C, hourly productivity decreases by approximately US$1.3 (at fixed Market Power Equalisation). This is about 3% of average hourly productivity in the sample of Allianz's countries for the period 2014-2020 (19 developed economies, including Greece).
According to analysts of the multinational insurance giant, wage adjustments follow productivity with some time lag. Therefore, short-term costs disproportionately burden the profitability of businesses before they are gradually transferred to household income and consumption.
At the same time, energy consumption increases by 1.2% for each grade above 30°C, increasing the cost of business inputs, just at the times when productivity decreases.
The heat steals our sleep
Workers are not affected only during working hours. Allianz's research points out that night temperatures rise faster than daily in many areas, resulting in sleep loss, up to 12 additional hours per year for people living in the most exposed areas. Degraded sleep quality translates to reduced cognitive performance, worse decision making and increased cardiovascular risks. All of this concerns not only those who work outdoors and are exposed to extreme temperatures. They also affect them more comparatively. «protected» Office workers, with negative effects on productivity.
Stress scenarios and impact on GDP
To quantify the risks, Allianz constructed a scenario in which each country experiences, successively from 2026 to 2030, the five hottest years recorded in the period 2014-2020. This is not a hypothetical climate scenario, but an assessment based on real historical data. That is, what would happen if the extreme temperatures already recorded were repeated.
The results reflect a strong division between north and south. Countries such as Switzerland, Ireland and Sweden, which remain below the 30-point threshold even in the stress scenario, are expected to experience even slight benefits. The cumulative increases in GDP, compared to the base scenario, range between 1% to 3%. The most beneficial is Finland, which in case of prolonged heat exposure may cumulatively increase its RES up to 7%.
Instead, the most exposed economies face cumulative GDP losses of around -5% as -7% for the period 2026-2030. In absolute figures, the European economy most at risk is France, with possible cumulative heat losses at 254 billion. dollars or almost 206 billion euros in a depth of five years.
Italy, with 147 billion Germany with 131 billion and Spain, with $120 billion (about EUR 126, 112 and 103 billion respectively).
Japan is facing the biggest economic risk from heat worldwide, with possible cumulative GDP losses of USD 354 billion (or EUR 303.5 billion), by 2030.
How Greece is in danger
Greece is somewhere in between. The cumulative deviation in GDP, compared to the base scenario, is -4.1%, which corresponds to possible cumulative losses of 13 billion euros.
In Allianz's scenario, the Greek economy appears more vulnerable to heat waves compared to countries such as Slovakia, Portugal, the Czech Republic and Belgium, facing comparatively smaller losses in GDP.
From there on, the balance is reversed, with Denmark, Austria and the Netherlands being marginally benefitting from rising temperature.
Investment reduction
The investment finding is particularly worrying. In almost every country affected, the reduction in fixed capital formation far exceeds the reduction in private consumption, reaching an average of 8%. As heat limits expected returns, investments shrink, which undermines future production capacity in a self-powered slowdown cycle. The cumulative decrease in investment for Greece is in the average of the sampled countries, i.e. -8%,
Budget pressures and stagnation
The report warns of another paradoxical dynamic: heat waves tend to create stagnant inflationary conditions, with simultaneously rising prices and unemployment.
This makes it extremely difficult for central banks, who are faced with a dilemma without an easy solution. The tightening of monetary policy to contain inflation worsens unemployment, while relaxation to support the labour market serves to further increase prices. This contradiction is particularly strong in the Eurozone, where a single interest rate is called upon to serve economies with a very different climate report.
In Greece, according to Allianz economists, private consumption is expected to decrease cumulatively by -4%, from 2026 to 2030, after the climatic conditions of the heat have been confirmed. Similarly, it plans to increase unemployment by 1% and increase inflation by 2.5%.
Financial balance
At the same time, public finances are under double pressure. Extreme heat has a negative effect on GDP and productivity, reducing tax revenues. At the same time, costs for health, benefits and infrastructure are increasing – precisely because of the effects of heat. Disorder in supply chains and energy systems, due to heat waves, also contributes to reducing revenue.
On average, the financial balances of European countries could worsen by – 0.5% of GDP per year. For countries such as France, which already has a deficit of 4.9% of GDP, the additional pressure of 2.2 percentage points is particularly worrying. Italy and Spain are at risk of reopening the Maastricht deficit threshold.
Η Ελλάδα, σημειώνει η έρευνα βρίσκεται σε ελαφρώς καλύτερη θέση, αφού έχει μεγαλύτερο δημοσιονομικό χώρο. Όμως κινδυνεύει επίσης από απώλεια εσόδων της τάξης του 1% του ΑΕΠ ετησίως, με πιθανή πίεση στο δημοσιονομικό ισοζύγιο, λόγω ζέστης, ως 1,1% του ΑΕΠ.
Η πλήρης έκθεση της Αllianz HERE
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