'If global warming hits 4°C...': Study finds 40% of global GDP could be hit, shattering past economic forecasts

A world warmed by 4°C would be 40% poorer, new research warns — and the losses could be far worse than anyone expected.

Conventional economic models have long underestimated the real cost of climate change. But new research, led by Dr Timothy Neal at the University of New South Wales, shows just how flawed those calculations have been. If global temperatures rise by 4°C, the global economy could suffer nearly four times the damage earlier models predicted.

Even a 2°C increase — a target still considered ambitious — could slash global GDP per capita by 16%, according to the study. That's a staggering leap from the modest 1.4% dip projected by many older models.

At the heart of this revised outlook is one crucial shift: the study centers on how extreme weather can set off cascading supply chain failures. Traditional models often isolate climate impacts by geography, missing how, for instance, a flood in Asia could halt factories in Europe or North America.

“In a hotter future, we can expect cascading supply chain disruptions triggered by extreme weather events worldwide,” said Dr. Neal. The fallout, he warns, will ripple far beyond disaster zones.

Professor Andy Pitman, a co-author, drove the point home: “It’s in the extremes when the rubber hits the road. It isn’t about average temperatures.” Climate change isn’t just warming the world — it’s destabilizing the systems that power global trade, food production, and economic resilience.

The study also tackles a persistent myth: that some northern countries might gain from moderate warming. But the modern global economy is too interconnected for that logic to hold. “Global heating will hit countries everywhere,” Neal said. Localised agricultural benefits, he explained, will be dwarfed by the collapse of global trade networks.

This was echoed by Professor Frank Jotzo from the Australian National University, who pointed out a major flaw in earlier models: the assumption that if one region falters, another can easily fill the gap. “That’s simply not how the real world works,” he said.

Flawed models do more than mislead — they reinforce the dangerous idea that climate change is a slow-moving or manageable threat. A January report by the Institute and Faculty of Actuaries highlighted gaps in existing models, from their neglect of tipping points and rising seas to geopolitical instability and health crises.

For some, the new projections may still be optimistic. “If anything, I believe the economic impacts (of climate change) could be even worse,” warned Mark Lawrence, a former financial risk manager who now studies climate risk.

What’s at stake isn’t just environmental policy — it’s the foundation of global economic planning. “Retooling economic models to account for extremes and global interdependencies feels like a very urgent thing to do,” said Prof. Pitman. Without such updates, the world risks sleepwalking into a future of climate-driven poverty.