In recent years, we have seen a significant increase in the frequency and intensity of climate-related disasters. The macroeconomic impact of these phenomena is a topic that demands our attention and cannot be ignored. In Portugal, the situation is particularly worrying as the country faces increasing exposure to climate-related risks such as devastating forest fires, severe droughts affecting agriculture and industrial sectors, as well as heat waves that alter working hour patterns and contribute to loss of life and a decrease in overall productivity.
A recent study by the Bank for International Settlements (BIS) reveals that climate disasters, such as floods, droughts and storms, not only affect people’s lives and the integrity of infrastructures, but also have profound repercussions on the growth of Gross Domestic Product (GDP) and inflation in economies. This impact is visible in Portugal, where prolonged droughts and forest fires in the interior regions have direct consequences on agricultural production, a vital sector for the national economy.
The study analyzed data from 151 countries between 2000 and 2024, revealing that the negative effects on GDP can be significant and long-lasting: -2%, -1% and -0.4%, respectively, after droughts, landslides and forest fires, over four years. This impact is not just a number: lives are affected, economies are stagnant and an uncertain future. In Portugal, the agriculture, forestry and tourism sectors are often the first to feel the devastating effects of climate change. Prolonged droughts can ruin harvests, leading to an increase in food prices, which is inevitably reflected on consumers’ tables. Inflation, which already haunted many economies, becomes an even more real specter when climate crises take hold.
Furthermore, the impact of climate disasters varies depending on the region and the resilience of local economies. In Portugal, companies and regions must start assessing their respective climate risks and developing integrated adaptation and contingency plans. The study suggests that preparing for and adapting to climate change is essential to mitigate these impacts. Investments in resilient infrastructure, early warning systems and risk management policies are essential to reduce the vulnerability of communities.
The interconnection of global supply chains makes the scenario even more complex. A disaster in one part of the world can have repercussions on economies thousands of kilometers away. In Portugal, for example, rising raw material and food prices, caused by extreme weather events in other parts of the world, can have a direct impact on inflation and economic stability. As climate change alters production and distribution patterns, the most interconnected economies may face deeper crises.
It is essential that governments and companies collaborate to develop strategies that not only respond to disasters, but also prevent their occurrence and minimize their effects. Resilience and adaptation plans must be the new motto. Investing in infrastructure capable of withstanding the force of nature and promoting sustainable resource management are fundamental steps. Education and awareness of climate risks must be a priority, empowering communities to prepare for the unexpected.
The BIS study highlights the urgent need to address the macroeconomic impact of climate disasters, and it is clear that integrating climate risk analyzes into investment decisions and economic planning can contribute to building more resilient economies. In Portugal, it is necessary to implement measures that consider environmental risks in public policies, investments, expenses and GDP growth projections for the coming years.
Last week, the UK Climate Change Committee wrote a letter to the Government drawing attention to the need to develop serious and urgent climate adaptation measures, as there is a significant probability that the temperature will reach +2°C in 2050 and not in 2100, as thought in 2015.
All the information we have access to indicates that the temperature is increasing at a much higher rate than expected. Economists already recognize that climate risks affect a country’s macroeconomy, making it necessary to include them in macrofiscal models and public financial management processes. As Portugal is one of the European countries most vulnerable to climate change, it should put this issue on the table in a transversal and coherent way from now on.
PhD, CEO da Systemic
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