Climate shock: Europe faces $128 billion heatwave hit in 2026; India stares at $50 billion El Niño impact

Climate change is increasingly showing up not just in weather records, but in economic data. A new Allianz Research report estimates that extreme weather events caused $210 billion in economic losses globally in 2025, while Europe’s heatwaves alone could cost the region $128 billion in lost economic output in 2026. 

The Allianz Climate Economics Report 2026, released last month, examines how rising temperatures, heat stress, drought, floods and other climate events affect economic growth, inflation and household purchasing power. The report uses Allianz’s proprietary ClimRad platform to model the economic effects of climate risks across countries.

Extreme weather losses remain above historical average 

Global economic losses from extreme weather stood at $210 billion in 2025, down 32% from $307 billion in 2024. Despite the decline, losses remained 20% above the 2000-2019 average, highlighting the continuing economic burden from climate-related events.

The impact varied sharply between countries. 

The US recorded the largest absolute losses at $118.5 billion, but this represented about 0.4% of its GDP. Jamaica, by contrast, suffered losses equivalent to 39.4% of GDP. Thailand's losses reached 2.9% of GDP, while Portugal recorded losses equal to 0.8% of GDP — around four times its historical average.

Temperature anomalies were also uneven. Norway recorded a temperature anomaly of +3.74°C in 2025, compared with a global anomaly of +1.38°C, according to the report. 

Europe’s 2026 heatwave bill 

Europe's experience in 2026 illustrates how climate risks can directly affect economic output. 

Allianz estimates that heatwaves across 30 European countries could result in €113 billion ($128 billion) of lost output in 2026. That is equivalent to around 0.46% of their combined projected GDP. 

Italy, Germany and France account for almost two-thirds of the estimated loss. Cyprus faces the largest estimated reduction in economic growth, at 1.74 percentage points. 

The report also highlights the role of humidity. The hottest location does not necessarily suffer the largest economic impact because heat stress depends on both temperature and humidity, as well as population exposure. 

Climate damage goes beyond destroyed property 

One of the report's central arguments is that the economic cost of climate change cannot be measured simply through damaged buildings, infrastructure or insured losses. 

Extreme heat, for example, can reduce worker productivity, increase energy demand, raise healthcare costs and put pressure on public finances. These effects can then feed into consumption, inflation and overall economic growth. 

Allianz's ClimRad platform combines climate indicators, catastrophe data and macroeconomic modelling to estimate these broader effects. 

This means a climate event can affect an economy even when physical destruction is limited. A prolonged heatwave can reduce the number of hours people can work efficiently, increase cooling costs and put pressure on food prices and electricity systems. 

El Niño could create another economic shock in 2027 

The report also looks ahead to a potentially strong El Niño event forming in 2026 and continuing into early 2027. 

Using the temperature effects observed during the 2023-24 El Niño as a reference, Allianz estimates that the phenomenon could reduce global economic output by about $451 billion in 2027 across 144 economies. This represents roughly 0.24% of projected GDP across those economies. 

The estimate is based specifically on temperature-related economic effects. It does not include additional losses from floods, droughts, wildfires and other extreme events that could accompany a strong El Niño. 

China, the US and India would collectively account for nearly 60% of the gross losses, with estimated losses of about $147 billion, $91 billion and $50 billion, respectively. 

India could face $50 billion economic impact 

For India, Allianz estimates a potential $50 billion loss in economic output in 2027 under its El Niño temperature-impact scenario. 

The effect would not necessarily be limited to GDP. Allianz estimates that the global El Niño shock could push headline inflation up by an average 0.42 percentage points and food inflation by 0.65 percentage points, when countries are weighted by purchasing-power-adjusted GDP. 

The report cautions that these figures should be treated as a sensitivity analysis rather than a complete forecast because they capture temperature-related effects and exclude several other potential climate impacts. 

Why adaptation is becoming an economic issue 

The Allianz report argues that the experience of 2025 and 2026 points to an adaptation gap between countries that invest in prevention and those that primarily respond after disasters occur. 

Australia, Chile and Canada, for example, have used wildfire programmes involving monitoring, preparedness and investment ahead of fire seasons. Morocco has invested in flood-warning systems and risk mapping, with a World Bank-backed resilience programme receiving $408 million since 2016.

The broader economic lesson is that climate adaptation increasingly involves upfront spending on resilient infrastructure, early-warning systems, disaster financing and preparedness, rather than relying predominantly on reconstruction after a disaster. 

For businesses and governments, the report therefore frames climate change as an economic risk that can affect productivity, inflation, public finances and growth, in addition to physical assets and insurance claims.