Heatwaves, coldwaves, floods, and droughts: the short-term impact of extreme weather events on economic activity

Malin Andersson, Niccolò Battistini and Alina Bobasu

No 3203, Working Paper Series from European Central Bank

Abstract: This paper examines the short-term macroeconomic and sectoral effects of extreme weather events in Germany, France, Italy, and Spain. We construct novel indicators of extreme temperature and precipitation based on percentile thresholds of long-run historical distributions and estimate their impact through country-specific structural Bayesian VAR models. The analysis documents sizable and heterogeneous effects on real GDP, HICP, and sectoral activity over a one-year horizon. Temperature extremes primarily affect industrial and energy-related sectors, with Germany exhibiting the strongest vulnerability to heatwaves. Precipitation extremes mainly impact construction and mining, with Spain featuring the largest exposure to floods and droughts. Sectoral composition plays a key role in shaping transmission, with pharmaceuticals, electricity, construction, and mining displaying distinct and recurrent patterns. Given their impact on prices, extreme weather event shocks may exert inflationary pressures without hurting activity, or induce demand-type of effects on the overall economy, with different effects across countries. JEL Classification: E23, E32, Q54, R11

Keywords: extreme weather events; sectoral output; short-term risks; structural BVAR (search for similar items in EconPapers)
Date: 2026-03
Note: 427284
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20263203

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