Chartbook 467 "Mad dogs and ...": Heatwave economics - summer 2026

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Chartbook 467 "Mad dogs and ...": Heatwave economics - summer 2026

Adam Tooze<br>Aug 16, 2026

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The crisis of global heating will take many forms and we may imagine it in different ways.<br>Hitherto, I tended to think in terms of dramatic scenarios. Hurricanes and storms bulked large in my imaginary.<br>This July in Paris, I felt something else, something quite different: the suffocating, blanketing, smothering, suppressing force of really high temperatures. Not the 50 degree plus that some places have suffered in the Middle East, but something that, nevertheless, felt unmanageable, like drying or cooking in your own skin, or both at the same time.

Extreme Temperatures Around The World@extremetemps

HARSHEST HEAT WAVE IN HISTORY<br>52c DAY/39c NIGHT<br>World climatic history is being rewritten in Middle East<br>52C KUWAIT CITY all time record after a MIN. of 38C

Crazy MIN 38.7C Delhoran IRAN<br>35.0 Makkah,SAUDI ARABIA (August record)

Record also in The Sahel<br>Min 29.5 Nguigmi,NIGER

3:42 PM · Aug 12, 2026 · 45K Views

174 Reposts · 494 Likes

The difference that struck me is that whereas my previous vision of the climate crisis had been dynamic - huge forces unleashed in roaring winds and irresistible storm surges - this experience of extreme heat was the opposite: immobility, silence and emptiness.<br>Under the “pressure” of the sun, no one and nothing moved. Or at least sane people didn’t. The impact on street life, footfall, small businesses in Paris was dramatic. It was like a heat-imposed COVID lockdown.

Are we ready for this? No we are not.<br>Casting around for interpretations, I found in Le Monde a grim interview with one of France’s leading experts on “building energy performance”. He described France’s housing stock - particularly the late 20th century additions that are well insulated but offer no ventilation - as death traps. They heat up and the heat has nowhere to go.<br>Apparently the slang term for such hot box apartments is, “whistling kettles”. Kettles with people inside them. A vision straight out of Hieronymus Bosch's visions of hell.

European insurers have long been in the forefront of trying to translate the cost of the climate crisis into manageable risks. But what El Nino has delivered this year goes far beyond anything that can sensibly be covered by individual insurance. In May this year, Allianz, the large Munich-based group, published a report that gave some measure of just how extreme the costs may turn out to be.<br>The economic transmission of heat stress is non-linear, with a critical threshold around 30°C beyond which productivity losses intensify sharply. Below this level, warming reduces heating costs and is associated with modest productivity gains. Above this level, the relationship reverses and both channels worsen with each additional degree. The dominant effect operates through labor: output per hour declines by approximately USD1.3 (constant PPP, ~3% of mean hourly output in our 2014-2024 sample) for every degree across the 30-35°C range. Wage adjustments follow productivity with a lag, so the short-run cost falls disproportionately on firm profitability before gradually transmitting to household income and consumption. A second, smaller channel runs through energy: consumption rises by around 1.2% per degree, raising firms’ input costs at exactly the temperatures where labor productivity is falling.<br>To gauge the macroeconomic stakes, we construct a stress scenario in which the five hottest years observed in each country between 2014 and 2024 are replayed in ascending order over 2026–2030 – the fifth-hottest year in 2026, the fourth in 2027 and so on, culminating in the country’s hottest year on record in 2030. Under this trajectory, cumulative implied GDP losses (2026 – 2030) could reach 5–7% for the most exposed economies: USD240bn for France, USD354bn for Japan, USD147bn for Italy, USD131bn for Germany and USD120bn for Spain. More consequentially for long-run growth, in such a scenario the decline in fixed capital formation systematically exceeds consumption losses, reaching 8% on average across affected countries: As heat compresses expected returns on capital, investment falls, reducing future productive capacity in a self-reinforcing drag. Moreover, stagflationary dynamics should be expected, with rising prices alongside rising unemployment, placing monetary authorities in a binding trade-off that is especially acute in the Eurozone, where a single policy rate must serve economies with sharply diverging climate exposures.

As good Europeans, the economists at Allianz then went on to spell out the fiscal burden.<br>The fiscal consequences fall most heavily on the economies least able to absorb them. The loss of economic output due to heat reduces tax revenues: Estimated annual losses would reach 1.8% in France, 1.3% in Italy and Spain and 0.7% in Germany – partly because...