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.
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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.
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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.
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