Economy
This summer shows climate change’s cost to Europe already here
For those in Europe who still saw climate change as a problem for future generations, this summer’s intense heatwaves have made clear that its expensive and life-altering economic consequences have already begun to unfold.
Record heat and droughts this summer – which scientists say are exacerbated by global warming – have wreaked havoc in power production, shipping and public health systems, while this wildfire season is on track to be Europe’s biggest ever.
Together, the hit to the region’s economy can already be measured in the hundreds of billions of euros, economists and academics estimate. But they warn this is just the beginning, as costs are set to rise faster than temperatures.
Climate is changing more rapidly in Europe than on any other continent and the damage is already stretching public finances, setting off wild swings in inflation, redrawing the tourism map, and forcing the bloc to rethink how power is produced and how goods are transported.
“What makes 2026 particularly worrying from an economic perspective is that there are multiple episodes of extreme events,” said University of Mannheim economist Sehrish Usman.
“Take heatwaves, droughts, wildfires… these events are taking place at the same time and mostly in the same regions, compounding their impact,” she said.
Record economic damage from heat
Temperatures hit records in June and July, and the economic damage will likely exceed all previous marks, economists say.
Traffic on the Rhine and the Danube rivers, key cargo arteries, is severely limited because of low water levels, and more than a half dozen nuclear generators have shut or curtailed production due to cooling difficulties.
Agricultural yield estimates have been cut, with crops harvested late, such as maize and sunflower, suffering a 6%-7% loss already in July. Heat curtails human productivity and has already claimed tens of thousands of lives, with Germany alone reporting more than 10,000 heat-related deaths.
Meanwhile, the costs of the emergency response, like fighting fires or curtailing power use, further stretch budgets.
ING estimates that the halt of traffic on the Rhine alone will lower the GDP of Germany, the world’s third-largest economy, by 0.3 percentage points this year, while Hungary’s MBH Bank sees a 0.1 percentage point GDP hit for every week the country’s largest nuclear generator is offline.
Allianz, the German insurer, estimates the two-week June heatwave alone will cut the GDP of Europe by 0.3 percentage points, and climate change will shave 5%-7% off growth by 2030 for the most exposed economies like Spain, France and Italy.
“The total bill for this year will be much larger,” said Hazem Krichene, an economist at Allianz. “This figure doesn’t account for the fires, droughts, different flood events or the expected El Niño.”
Given that the eurozone is expected to grow just 1% this year, the hit is sizable.
Yet Usman says the full extent of the economic damage will only be felt several years down the line.
“You’d expect the damage to be largest in the year an extreme event happens and then to fade but we find the opposite,” Usman said. “The economic impact grows over the following years because the extreme weather set off a chain of slow economic consequences.”
Southern Europe to suffer falling tourism and rising inflation
Southern Europe could take the biggest hit as temperature spikes are the largest there, cutting tourism income, exacerbating crop failures and inducing outward migration.
“Can you see tourists marching through southern Italy or Spain in 45 degrees? I can’t. So, I think the nature of tourism will change,” ING economist Carsten Brzeski said.
The south may get more year-round tourists, but summer peaks will drop as vacationers move north, hitting the southern hospitality industry, Brzeski argued. The south will also take a bigger food price hit from extreme weather, complicating life for the European Central Bank (ECB), which is already struggling to keep inflation at target.
“You see bigger effects of extreme temperatures on food prices in places that are already hotter, so if you’re in Southern Europe, you’ll see a bigger effect,” said Maximilian Kotz, a researcher at the Barcelona Supercomputing Center.
Extreme heat in 2022 lifted eurozone inflation by 0.34 percentage points via higher food prices, with the south taking a disproportionate hit, Kotz estimated.
Meanwhile, a halt in river transport is making it harder for fuel to reach parts of Europe, widening regional price differences.
Heat strains on budgets to put pressure on ECB
“The fiscal consequences fall most heavily on the economies least able to absorb them,” Allianz said in a research note.
Reductions in annual tax revenue from lost output could reach 1.8% in France, 1.3% in Italy and Spain as progressive tax systems mean revenues fall faster than output, it estimates.
Business profit margins will also decline, depressing investment and exacerbating the economic loss.
Costs meanwhile surge, both because governments have to fund the emergency response and must invest, such as in future-proofing power generation or transportation routes.
“A key concern is that countries still rely far too much on ad hoc emergency response, which is both expensive and also often quite inefficient,” said Heather Grabbe, a senior fellow at the Bruegel think tank.
But investors may push back if governments try to spend more. Debt levels are already high – especially in France and Italy – and countries need to invest in defense and the green energy transition.
The dilemma could draw in the ECB, which bought up trillions of euros worth of countries’ debt in the past decade to keep borrowing costs depressed when inflation was too low.
“With such a long list of spending needs, the trend will be towards higher government debt,” ING’s Brzeski said. “This will then mean pressure on the ECB to step in and do more quantitative easing, if there is a sudden selloff in bond markets.”
The newly signed defense pact between Türkiye, Saudi Arabia and Pakistan heralds not only a strong new security alliance but a multidimensional partnership that could help unlock new economic and investment opportunities across a wider region, analysts say.
The trio, which already harbors robust defense ties, inked on Friday in the Muslim holy city of Mecca the agreement, which stipulates that an armed attack on one signatory would count as an attack on all.
And while the “Mecca Joint Defence Agreement” is intended to strengthen collective deterrence against any act of aggression, the deal is not merely seen as a collective defense commitment but as a step that brings Ankara, Riyadh and Islamabad even closer.
Recent years have witnessed Ankara building on defense cooperation with both. In 2023, Riyadh agreed to buy Turkish drones in what Ankara called its largest defense export contract.
Similarly, Türkiye and Pakistan have expanded defense cooperation through naval projects, military training and other joint programs. In 2018, the duo launched the MILGEM project that foresees the delivery of four corvettes to Pakistan’s Navy, two of which, made in Türkiye, have already entered the force.
At the same time, the Mecca treaty is seen as having significant potential not only in the security field but also in terms of economy, energy, and trade.
The ongoing conflict between the U.S. and Iran, which has strained vessel passages through the strategically important Strait of Hormuz and recent pressure in the Red Sea have reinforced the need for alternative energy routes, and Türkiye has been positioning itself as a potentially strong leader.
While Ankara has been advocating for the expansion of a critical pipeline with Iraq further to the south, it also said it could be seen as a hub in the region, owing to its contracts and expanding oil and gas partnerships in the different regions.
‘Economic benefits’
“The defense agreement signed here is actually more than just a defense agreement; it’s an agreement that will have very significant economic benefits for the future. I believe it will have very important effects, especially considering that Türkiye, Pakistan, and Saudi Arabia are powerful countries in the region and have a deterrent effect,” an analyst, Zekeriya Şahin, told Turkish publication CNN Türk.
“Now, when evaluating this agreement, it’s necessary to consider separately the finalized economic revenue and the potential revenue stream that could arise after the Mecca Defense Agreement. And with that, I also foresee that, given the current congestion in the Strait of Hormuz in the Persian Gulf, other Gulf countries may join this trilateral agreement in the future,” he argued.
Foreign Minister Hakan Fidan said on Saturday that Egypt might join the pact as well.
“In other words, this strategic agreement could even lead to a new Gulf pact. This would, of course, also mean a strengthening of commercial relations, and one of Türkiye’s strongest areas is the defense industry, and we are in a position to transfer technology and even form partnerships in the defense industry,” Şahin added.
Türkiye, with its advanced technology and defense expertise, stands as the 11th largest exporter of arms globally, and officials are suggesting it is closing in to enter among top 10.
But apart from defense potential, Türkiye in general has steady trade relations with its Gulf partners, while it also aims to further lift bilateral volume with Pakistan.
Last month, Istanbul hosted a large Pakistan-Türkiye Business Conference, where officials from both countries emphasized the potential to further strengthen economic cooperation in a number of fields, from logistics, energy, to IT and artificial intelligence.
“The three countries are unusually complementary,” Andreas Krieg, a lecturer in security at King’s College London, told Agence France-Presse (AFP).
Trade relations, potential
Türkiye’s strong diplomatic and commercial ties with the countries members of the Gulf Cooperation Council (GCC) have positively reflected on recent trade figures, as exports to the region surged 35.7% year-over-year to surpass $826 million in June.
Saudi Arabia recorded the largest increase in export value in June compared with the same month in 2025, rising by approximately $229.8 million, the data sourced from Türkiye Exporters Assembly (TIM) reveals.
Saudi Arabia has, thus, become Türkiye’s largest Gulf export market and the country recording the strongest export growth in the region – the performance which is attributed to bilateral ties but also to the kingdom’s Vision 2030 program.
In this regard, the role of globally-renowned Turkish contractors plays an important role and carries significant potential.
Coupled with the potential of the proposed Development Road Project, which foresees Türkiye as a key link for intercontinental trade, the defense pact could reap economic benefits for the actors in the region.
Among others, Türkiye’s robust and expanding economic ties with Saudi Arabia have seen the signing of an intergovernmental agreement for renewable energy investments worth approximately $2 billion, reached earlier this year.
The combined and relatively young and dynamic population of Türkiye, Pakistan and Saudi Arabia, which stands at about 380 million, also carries potential for closer inter-people relations and cooperation.
Trade Minister Ömer Bolat said on Sunday that a new daily record for truck departures in 2026 was set on Aug. 7 at the Habur Border Gate, with 2,454 trucks leaving the country.
Pointing out that Türkiye’s trade strength is extending beyond its borders and that its influence on regional trade routes is increasing day by day, Bolat announced the record through a post on his NSosyal account.
“On Friday, Aug. 7, we set the daily truck departure record for 2026, with 2,454 trucks passing through our Habur Border Gate in the Silopi district of Şırnak province,” he noted, referring to the busy crossing with Iraq.
Bolat stated that the record “is a strong indication on the ground of the growing trade with neighboring Iraq, new transit trade corridors extending toward the Gulf countries, and Türkiye’s determination to become a regional logistics hub.”
The minister also emphasized that the Habur Border Gate is not only important for Türkiye-Iraq trade, but also stands out as one of the most important crossing points along the strategic Silk Road trade corridor connecting Türkiye through Iraq to the Gulf and to wider markets.
“In the Century of Türkiye, we are expanding our trade routes, strengthening our logistics infrastructure, and enabling our exporters to reach the world faster and more effectively,” he wrote.
“The daily record of 2,454 trucks is a tangible indication of our growing trade and strengthening logistics capacity,” he added, while thanking exporters, drivers and customs employees who made the achievement possible.
“We will continue with determination to expand our country’s trade routes, increase our exports, and make Türkiye a regional trade hub,” he pledged.
“Türkiye is producing, exporting and opening up to the world.”
Germany’s trade gap with China grew in the first half of the year, even as the Asian powerhouse kept the position of its top trade partner, preliminary data from state-run agency Germany Trade & Invest (GTAI) showed on Sunday.
German exports to China fell over 12% year-over-year to just under 37 billion euros ($42.8 billion) between January and June, the data showed, as Chinese firms cut reliance on European imports, making China only the ninth-biggest market for German goods.
As recently as 2021, China was the second-biggest export market.
That year, Germany sold China merchandise worth 104 billion euros, despite the effects of the COVID-19 pandemic. Now, German manufacturing is struggling with both U.S. tariffs and Chinese competition, triggering major job cuts at bulwarks of industry such as carmaker Volkswagen.
China, though, is selling more and more to Germany.
In the first half of last year, Germany ran a trade deficit of 40 billion euros with China. That had swelled to some 55 billion euros during the same period this year.
German imports from China rose 8.9% to 91.8 billion euros over the period. Total trade was over 128 billion euros, some 3 billion euros more than with the United States.
“The reasons for declining exports to China are the weak domestic economy and increasing (Chinese) focus on domestic value chains,” said GTAI East Asia expert Corinne Abele.
German firms are now producing more inside China itself, while China’s property crisis and cash-strapped regional governments are curbing investment, Abele added.
Far smaller economies like Austria and Switzerland have bought more German goods than China in 2026, the data showed.
China’s diminishing reliance on Germany showed it is becoming more independent of Western powers and catching up technologically, said Commerzbank economist Vincent Stamer.
China overtook the U.S. as Germany’s top trading partner in 2025 after U.S. President Donald Trump returned to the White House and launched protectionist tariff policies that have eroded German exports to the United States.
The U.S. remains Germany’s single-biggest foreign market, but exports there fell about 6% through June to just over 74 billion euros, Abele said. By contrast, German imports from the U.S. grew 7.1% to nearly 51 billion euros.
France and the Netherlands were the next biggest export markets. Overall, German exports rose 3.7% to 817 billion euros through June as global growth kept orders flowing.
“But the ‘Made in Germany’ brand must still reinvent itself,” said Commerzbank’s Stamer.
China’s producer price inflation cooled more than expected in July, marking its weakest level in three months, while consumer inflation also eased, according to official data released on Sunday. This decline came as global energy prices retreated despite the U.S.-Israel war against Iran.
China’s leaders, confronting a two-speed economy of strong factory output and exports but weak domestic demand, have pledged to bolster growth by accelerating fiscal spending on already budgeted infrastructure projects through year-end.
“Lower oil prices, combined with weakening demand, caused both (consumer and producer price inflation) in July to come in below expectations. Oil price trends remain uncertain, meaning their impact on inflation is also likely to be uncertain,” said Zhaopeng Xing, ANZ’s senior China strategist.
“On the demand side, the effect of faster fiscal spending in the second half of the year is likely to be felt with a lag of about one quarter. We maintain our view that inflation will follow an M-shaped trajectory this year.”
Fiscal lag, limited effect on quelling price wars
The producer price index (PPI) rose 3.5% from a year earlier in July, National Bureau of Statistics data showed, easing from 4.1% in June to its lowest in three months. It was below economists’ expectations for a 3.8% increase in a Reuters poll.
The core consumer price index (CPI), which excludes volatile costs for food and energy, rose 0.9% year-over-year, food prices fell 1.5%. From the previous month, CPI edged down 0.1%, compared with an expected 0.2% gain and following a 0.3% dip in June.
Overall annual inflation eased to a six-month low of 0.5%, data showed.
Zhiwei Zhang, chief economist at Pinpoint Asset Management, said the slower inflation was consistent with other activity data such as the PMI reading.
“The economic momentum softened in Q2,” Zhang said.
“The Politburo in July signalled stronger fiscal spending as the policy response. The transmission of the fiscal spending will take time.”
ANZ forecasts full-year PPI of 2.5% and CPI of 1.0%.
Although some of China’s upstream and high-tech sectors have maintained strong profit growth, more domestic market-facing manufacturers struggled against sluggish demand as overall economic growth lost steam. Rising input costs risk further squeezing their profit margins and dampening confidence.
Higher producer prices were driven mainly by increases in the mining and raw materials sectors, the statistics agency said. By contrast, prices declined for food and daily consumer goods.
Price shocks stemming from the U.S.-Israeli war on Iran and the closure of the Strait of Hormuz, the key oil and gas passage, have lifted producer prices and helped flip China’s yearslong deflationary streak. Government efforts to curb fierce price wars in major industrial sectors and stabilize prices had previously achieved only limited effects.
With household demand for goods still subdued by a property market slump and low job security, deflationary pressures likely remained, economists say.
Factory activity contracted in July in an official survey and slowed to a four-month low in a private-sector survey, with both data sets showing weakening new orders.
China’s top leaders, at a key meeting in late July, signaled stronger support for the economy and vowed to continue cracking down on competition-price wars among manufacturers chasing market share at the expense of profits.
They also pledged to introduce pragmatic and effective new policies in a timely manner, and more forcefully expand domestic demand and improve supply.
The legal battle over Lisa Cook’s position at the Federal Reserve is entering a new phase as U.S. President Donald Trump moves again to oust the governor despite a Supreme Court setback in June, a letter seen by Reuters showed.
The White House told Cook in a letter this week that the president was “considering” removing her from her role and demanded she respond to unproven mortgage fraud allegations within three weeks – allegations her attorney called “baseless.”
The salvo against Cook is the second time this week Trump has restarted an effort to take actions that the Supreme Court blocked earlier this year. Trump earlier this week also issued another order attempting to limit birthright citizenship after the high court ruled against his previous effort to limit who is automatically considered a U.S. citizen.
The letter to Cook, signed by Deputy Chief of Staff Dan Scavino and first reported by ABC News, alleged that she committed crimes that could be punishable by up to 30 years in prison and that her conduct constituted negligence that called into question her trustworthiness as a Fed governor, ABC reported.
In a statement, Cook’s lawyer said “there is no valid cause” for removing Cook from her position.
“As we did before, we will challenge this latest pretext and preserve her position and the historic role of the Fed,” attorney Abbe D. Lowell said. The Federal Reserve did not immediately respond to a request for comment. The White House did not immediately respond to a request for comment.
Trump last year cited mortgage fraud in trying to fire Cook, the first Black woman to serve as a Fed governor. Cook denied the allegations, calling them a pretext to remove her for monetary policy differences. The U.S. Supreme Court refused in June to allow the firing, standing firm to preserve the central bank’s cherished independence against the Republican president’s unprecedented challenge.
The court, in a 5-4 ruling, blocked Trump from removing Cook for now, providing a safeguard for the Fed specifically. No other president since the central bank’s founding in 1913 had sought to oust a Fed governor. Conservative Chief Justice John Roberts, who authored the high court ruling, said Trump had “failed to afford Cook the procedural protections to which she was entitled by statute. Without such protections, she could not properly dispute the charges the president laid against her.”
Roberts and fellow conservative Justice Brett Kavanaugh joined the court’s three liberal justices in the ruling. Conservative Justices Clarence Thomas, Samuel Alito, Neil Gorsuch and Amy Coney Barrett dissented. While the ruling definitively protects Fed officials from being fired at will by a president, the court said its ruling was not deciding the validity of the factual dispute in the case.
It has since returned the case to lower courts. “It at least remains an open question what precisely happened here, and indeed whether Cook committed ‘gross negligence,’ let alone ‘deceitful and potentially criminal conduct,’ as the president’s letter alleges,” Roberts wrote, adding that Cook must be able to respond to the charges made against her.
The disruption at Wildberries that has been heavily targeted by Ukraine is sending shockwaves through Russia’s retail sector, affecting tens of thousands of small businesses that rely on the country’s leading e-commerce retailer to sell their products.
In the space of three weeks, Vasily Klimov’s online shopping pick-up point in Moscow has gone from a healthy small business to a loss-making operation he is now desperately trying to sell.
Klimov runs one of 98,000 pick-up points in Russia and neighboring countries where customers collect goods ordered through Wildberries.
But since July 18, when Ukraine began hitting Wildberries warehouses across Russia in a wave of near-nightly drone attacks, his business has taken a massive dive.
Attacks on at least 20 of the company’s sites have sparked major fires, destroyed entire warehouses of stock, and disrupted its vast logistics network across the world’s largest country.
A review of satellite imagery shows at least 1.18 million square metres of warehouse space – more than a fifth of the company’s capacity – has been damaged or destroyed, according to Reuters.
Wildberries, which reported yet another attack on Friday, says it is seeking partners to open new storage hubs.
“Sales have dropped by about 50% over the past month, and that is because there are almost no deliveries,” said Klimov, whose outlet operates under a Wildberries franchise agreement.
“The last month has been entirely loss-making.”
Warehouse attacks bring war’s costs to business
At least 13 people have been killed in the warehouse attacks. Ukraine, which has been defending itself against Russia since February 2022, denies targeting civilians and says the strikes are part of a campaign to “bring the war home” to ordinary Russians and raise the cost to Moscow of continuing the conflict.
Russia this week killed at least 17 people in attacks aimed at commercial warehouses in and around Kyiv that it alleged were being used to store drone components and other “dual-use” goods with military as well as civilian applications.
Ukraine says Wildberries, whose vast product range includes items such as night-vision goggles, ammunition pouches and helmets, alongside regular clothing, cosmetics and electronics, is supporting Russia’s war effort. The company and the Kremlin say it does not supply the army.
The sustained targeting of Wildberries is significant because the company, together with other e-commerce platforms, handles goods and services worth the equivalent of 8.5% of Russia’s economy.
Central bank governor Elvira Nabiullina said on July 24 that the bank would wait and see whether supply disruptions resulting from the attacks translated into higher inflation.
Elina Ribakova, an economist with the Kyiv School of Economics and the Peterson Institute for International Economics in Washington, said the attacks could complicate the central bank’s efforts to lower interest rates from their current level of 14%.
“Even though the Russian economy is likely to register zero growth this year, and it was in contraction for the first quarter, inflation is still running high and therefore any small shock could force the central bank either to slow down significantly the cuts or even stop the cuts, so supply side shocks are very important,” she said in a phone interview.
In late July, Russia’s largest lender, Sberbank, said it may increase loan-loss provisions after the drone attacks weakened the credit quality of online retailers and vendors, with about 300 companies seeking to restructure loans.
A source close to the Kremlin told Reuters that many small and medium-sized businesses with “absolutely nothing to do with the war” would suffer.
“There will be a wave of bankruptcies. No one has the kind of money needed to support sellers; we’re talking hundreds of billions of roubles. That’s a significant blow to the economy,” the source said.
The Kremlin said in July that discussions had taken place within the government about possible support for Wildberries. This could include loans from state-owned banks to the company or its sellers, as well as tax breaks or subsidies, sources said at the time.
For sale: Wildberries pick-up point – 1 ruble
According to Wildberries, 95% of orders are collected from pick-up points like Klimov’s. He said deliveries have fallen to around 150 parcels a day from 400 previously. When Reuters visited on Tuesday, no packages arrived.
“I simply do not have enough financial reserves to hold out,” he said, explaining his decision to put the business up for sale despite a lack of buyers. At one point, he jokingly offered to sell it to a Reuters reporter for 1 ruble.
Over 3,100 Wildberries franchised pick-up points were listed for sale across Russia on online marketplace Avito as of Wednesday.
Some businesses are hoping Wildberries will provide additional support. The company says it has increased discounts, granted payment deferrals and made initial voluntary compensation payments to more than 97,000 sellers who lost stock in the attacks.
Fashion brand Finn Flare lost products worth more than 100 million rubles ($1.24 million) in July when drones sparked a blaze at Wildberries’ Elektrostal warehouse east of Moscow, sending huge pillars of black smoke into the air.
“Since available inventory decreased, orders also fell,” the company’s e-commerce director Marina Drozhzhina told Reuters. “We plan to negotiate with Wildberries.”
Others are less optimistic. “I am not counting on compensation because I don’t want to be disappointed later,” said artisan toffee-maker Anna Starostina, who lost 170 boxes of handmade sweets in one of the first drone strikes on a Wildberries warehouse on July 18.
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