European economy reels from record-breaking heatwave.
As mercury levels continue to peak, the costs borne by economies are also escalating due to sharply declining labor productivity and stagnant growth. This situation is creating a "double challenge" for the entire European economy, as the region is already struggling to cope with the energy price crisis.
According to AFP, as Europe experiences its second extreme heatwave of the year, the commercial credit insurance division of the German insurance group Allianz believes that record-breaking heat is shaping up as a structural economic risk, and Europe is the region most vulnerable.
Analysts from Allianz point out that Europe possesses a number of vulnerabilities to natural disasters: a rapidly aging population; and densely populated urban centers with housing infrastructure not designed to withstand extreme temperatures. Notably, only about 19% of households in the region are equipped with air conditioning, far below the 90% in the US.
Heatwaves are occurring with increasing frequency, due to Europe warming faster than any other region in the world. Scientists agree that human activities are the core factor driving these extreme weather events.
Patrick Martin, director of Medef – France's leading employers' organization – said: "France is operating in slow mode. This inevitably leads to work stoppages and a noticeable drop in labor productivity."
Research firm Allianz Trade has identified a "critical threshold" at around 30°C. Once this mark is exceeded, the rate of damage to labor productivity accelerates exponentially.
According to calculations by the AFP news agency, more than 100 million people in Europe experienced temperatures exceeding 35°C on June 25th; and nearly two-thirds of Europe's population lives in areas with temperatures above 30°C.
In a 2025 analysis report, the European Central Bank (ECB) noted that heatwaves occurring in spring, autumn, or winter could somewhat boost economic activity, particularly in the construction, agriculture, and outdoor food service sectors.
"Conversely, intense heat waves in the summer, which are already sweltering, will severely stifle economic activity, due to a significant reduction in the ability to work outdoors," the ECB emphasized.
In-depth research by the ECB indicates that summer heatwaves reduce economic activity across the region by approximately 1%. Contrary to the traditional view that these are merely temporary shocks, the ECB found that the decline in economic output was sustained and even worsened over time, bottoming out at less than 1.5% after two years of impact.
