Extreme weather events are becoming more frequent and destructive with rising global temperatures, and a multinational study has shown just how deeply they can affect the economy — not only in the disaster zone, but beyond it.
What is this study about?
As the Centre for Economic Policy Research shared, researchers found that severe climate-related disasters can reduce gross domestic product by more than 0.3% per year, with around half of those losses occurring outside the directly affected area.
The study, led by economists Hélia Costa and John Hooley, examined how severe weather events — such as major floods, hurricanes, or extreme heatwaves — impact regional and national economies.
Instead of looking only at country-level data, the researchers analyzed over 1,600 subnational regions across 31 Organisation for Economic Co-Operation and Development countries between 2000 and 2018.
This approach allowed them to detect both direct losses in regions hit by weather disasters and the spillover impacts in surrounding areas. They found that the most intense disasters can shrink GDP in an affected region by up to 2.2%, with losses of about 1.7% continuing for at least five years.
Why is this study important?
The biggest takeaway is that extreme-weather damage ripples outward beyond its immediate impact. It disrupts supply chains, reduces consumer demand, drives migration, and lowers employment in nearby regions.
This means that a warming planet driven by human-caused pollution is a systemic economic threat.
A disaster within 62 miles of a region leads to an additional 0.5% GDP loss, on average. These spillovers make up nearly half of all economic damage tied to extreme weather events. These findings demonstrate how interconnected modern economies are.
"Rich countries, poor countries — it makes no difference to climate change," explained climate scientist Tobias Grimm in a similar study from Munich Re.
"Weather disasters destroy lives, livelihoods and economic assets all over the world. It would make more sense to invest much more money in prevention than having to spend billions rebuilding after disasters — in richer and poorer countries alike."
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Extremely 😫 While climate adaptation can be expensive, it's clear that the cost of not preparing is worse.
Leaving infrastructure, emergency systems, and economic networks vulnerable will lead to greater losses that accumulate year after year.
How do extreme-weather insights help with climate resilience?
Understanding where and how extreme weather causes economic damage can help governments and communities be better prepared.
The researchers found that regions with strong fiscal support, economic diversification, and higher labor mobility recover faster.
With that, investing in infrastructure like flood barriers, cleaner transportation, and diversified energy systems is a smart step for building climate resilience.
Countries can also strengthen their insurance markets and disaster-response plans before weather disasters happen. Researchers also suggest supporting flexible labor markets and targeted job training to help workers relocate or transition after disasters.
These solutions end up being cost-saving in the long run. Every dollar spent on climate adaptation can prevent many dollars in future losses.
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