Spain Concentrates 15% of the Losses that the Drought Will Cause in the EU

The climate crisis has economic consequences for every country in the world. The exposure of certain sectors such as agriculture, as well as geographic location, become risk factors in the coming years. In 2021, these losses amounted to €2.7 billion in Spain and the forecast is that they will continue to increase in the coming decades. Until 2050, Spain will concentrate 15% of the total losses caused by drought in the European Union (EU).

The European Statistical Office, Eurostat, estimates the losses that the climate crisis caused throughout the EU in 2021 at €56,.5 billion. This figure is the impact that extreme weather events such as storms, floods, and heat waves had on the old continent, cold waves, or droughts. However, it does not allow us to identify how much each of these weather-related episodes involved.

In 2021, Germany was the most affected country, with €34.7 billion in losses; followed by Belgium, with €9.96 billion, France, with €5.7 billion and, in fourth place, Spain, with €2.7 billion.

But Spain climbs positions if the economic impact of the drought in the coming years is calculated. According to the Macroeconomic Climate Stress Test (MCST) carried out by Scope, a European credit rating agency, our country will face losses worth €4.6 trillion until 2050, due to drought and heat waves. 

Read more on the subject and find the latest financial news of the day with the born2Invest mobile app.

The worst harvest in decades in Spain

During this year, the drought has already had consequences for the Spanish crops. The dry land has been chaining for several very bad years. The cereal harvest in Spain will be the lowest on record for decades and will force a notable increase in grain imports at a particularly complex time due to Moscow’s attacks on the port infrastructure from where  Ukraine sells its arable crops.

Together with Italy, which could lose around €10 billion, both countries would account for 45% of the losses of €32.7 billion that the EU would face. For Spain it would mean 5.8% of GDP and for Italy, 8.3%. “The consecutive heat waves in Europe, together with the changes in the precipitation regime, are already exposing several regions (especially the south) to a meteorological drought. This is causing serious damage to economic, human, and natural systems. Drought episodes are among the many adverse effects of climate change, ” said Hazem Krichene and Arne Platteau, Scope analysts.

The north, less exposed

70% of drought-related losses occur in the five largest EU economies, according to an analysis by the rating agency. The northern EU countries (Germany, France, and the Netherlands) are the least exposed to drought risk, but the hypothetical drought-related losses in Spain and Italy represent 64% of the predicted loss of the big five economies.

Analysts describe the economic consequences as “serious” and warn that “assuming additional economic challenges and financial burdens derived from debt-financed public spending to deal with drought risks, which would raise their debt/GDP ratios, increasing the cost of long-term refinancing.”

Agriculture, the most affected sector

At the sectoral level, agriculture is the sector with the highest exposure to drought risk in the EU, with expected cumulative losses of €1.8 trillion, equivalent to 9.8% of the sector’s income. Food products, beverages, and tobacco; and wholesale and retail trade have exposures of 6.8% and 6.7%, respectively. Other economic sectors have relative drought-related losses ranging from 4% to 7% of the total expected loss in the EU, depending on the analysis.

This explains why Spain is one of the countries most exposed to these losses if the weight of Agriculture in the total economy is taken into account. In 2022, the sector contributed 9.2% of the gross domestic product, while in the EU the agricultural sector represents around 6.6%.

Scope’s analysis is based on three points: the sensitivity of economic activity to historical droughts, the country’s exposure to future droughts, and the weight of economic activity in GDP per capita.

__

(Featured image by Seaq68 via Pixabay)

DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.

This article may include forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “estimate,” “become,” “plan,” “will,” and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.

First published in EL INDEPENDIENTE. A third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

Although we made reasonable efforts to provide accurate translations, some parts may be incorrect. Born2Invest assumes no responsibility for errors, omissions or ambiguities in the translations provided on this website. Any person or entity relying on translated content does so at their own risk. Born2Invest is not responsible for losses caused by such reliance on the accuracy or reliability of translated information. If you wish to report an error or inaccuracy in the translation, we encourage you to contact us.