The extreme heat wave gripping Western Europe is putting increasing pressure on the continent's economies. The wave, which has broken temperature records particularly in France and the UK, is negatively affecting household incomes, corporate productivity, agricultural products, insurance costs, and public spending.
Meteo France announced that 61 regions are on red alert due to the heat wave, while 22 regions are on orange alert. The weather remains oppressive across most of the country, with temperatures generally ranging from 35 to 39 degrees Celsius; locally, in the shade, they can reach 40 or 41 degrees from Auvergne and Burgundy to the south of Ile-de-France and the Grand Est region.
The UK Met Office reported that the heat wave led to a red alert for extreme heat in parts of central and southern England and Wales, and that a June temperature record is expected to be broken. The Royal Netherlands Meteorological Institute (KNMI) also declared a red alert for temperatures that could locally reach 40 degrees Celsius in large parts of the country.
Heat and drought increase poverty risk
According to Reuters, the heat wave caused schools to close, train services to slow down, and power outages in thousands of homes in France, while prompting some farmers to harvest at night to avoid the hottest hours.
A study published in the journal Global Environmental Change showed that heat waves and drought increase poverty risk in Europe by about 1.1 percentage points, corresponding to an average of 5.6 million additional people in the 2004-2022 period. The study concluded that the simultaneous occurrence of the two phenomena damages household income more than each occurring alone.
Climate Analytics, a non-profit organization that contributed to the study, states that the combination of heat and drought reduces average household income in Europe by about 3% compared to what it would have been without these climate events. Losses are larger in the most affected regions, with the impact on income reaching 10% in Madrid, 8.8% in central Spain, and 9.4% in central Hungary.
According to the study, heat waves primarily hit low-income groups, as a larger share of these groups work in jobs such as agriculture, construction, field services, and transportation that cannot be moved to air-conditioned offices or performed from home. It was found that households in the poorest 20% suffer 2.7 percentage points more income loss during periods when heat waves and drought coincide than the richest 20%.
Labor productivity declines
According to the European Commission's Joint Research Centre, heat reduces effective working hours even if companies do not officially halt operations. Employee performance declines, longer breaks are needed, and the risk of heat stress, heatstroke, and heart conditions increases. These effects ultimately translate into lower output, reduced wages, or higher costs for employers.
The centre estimates that by mid-century, 22 European regions could experience annual labor productivity losses exceeding 1% due to heat stress, and that number could rise to 107 regions by the 2080s. In the worst-case scenario, productivity losses could reach 6% in Spain's Murcia region, while some parts of Southern Europe could face losses of up to 4% of regional gross domestic product.
A recent working paper from the OECD, based on company and weather data from 23 advanced economies, revealed that an increase in high-temperature days and heat waves reduces labor productivity. The effect was noted to be greater in smaller and less productive companies, and to increase as the heat wave lengthens, humidity rises, and wind weakens.
Economic toll grows
According to the European Drought Observatory, while drought intensified in Europe in late May 2026, a prolonged heat wave affected the Iberian Peninsula, the UK, France, the Alps, and Italy. Warning conditions persisted or became established in northeastern Europe, western Russia, and the UK.
Reuters reported that the current heat wave has caused power outages in France, while Bloomberg agency reported that the wave is testing electricity grids and health services in Western Europe.
The European Environment Agency estimates that economic losses from extreme weather and climate events in the European Union amounted to approximately 822 billion euros between 1980 and 2024, with over 208 billion euros of that occurring in just the 2021-2024 period. The agency stated that all of the last four years are among the five years with the highest annual losses since 1980.
The European Environment Agency states that heat waves are responsible for about 95% of deaths related to extreme weather in Europe, and that climate events are putting pressure on health, nature, water and food supply, infrastructure, and the economy. The problem manifests in public budgets through emergency health costs, disaster compensation, infrastructure protection, and support for households and companies after heat waves and droughts.
The European Union's Copernicus Climate Change Service's 2025 European State of the Climate report confirms that Europe is the fastest-warming continent in the world and that at least 95% of the continent experienced above-average temperatures in 2025. The Climate Analytics research projects that if global warming is limited to 1.5 degrees, the impact on income will remain relatively limited, but under the path of current policies, the impact will expand significantly. According to the research, in the 1.5-degree scenario, average household income in Europe would fall by 7%, while if warming reaches 2.7 degrees by the end of the century, this rate rises to 27%. The heaviest losses are expected in Greece, Spain, Romania, Bulgaria, and Cyprus.
