Europe: Extreme weather weighs on growth – Standard Chartered

Standard Chartered’s Christopher Graham and Emily Ashford highlight that Europe’s record heat and drought in 2026 are disrupting refiners, power generation, inland waterways and agriculture. European Central Bank (ECB) research suggests sizeable output losses, especially in Eastern Europe, and warns that climate adaptation investment may divert resources from more productive uses. ECB policy makers and fiscal agencies face difficult trade-offs as inflation and weaker demand interact.

Heat, drought and policy trade-offs

"Temperature records have been broken in many EU countries in 2026, with Western Europe experiencing the hottest June on record."

"Large parts of Europe are also experiencing drought conditions, compounded by the evaporative effects of higher temperatures."

"The effects of extreme weather are likely to impact the economy via multiple channels."

"Recent European Central Bank (ECB) analysis shows that extreme heatwave and drought conditions – similar to those observed in 2022 – could result in a sizeable output loss, with Eastern Europe more heavily affected."

"Separate ECB research finds significant regional effects that could intensify over time, while investment in climate adaptation infrastructure can divert resources away from more productive investment."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)