Europe faces combined pressure from heatwaves and rising energy costs

Heatwaves across much of Europe are tightening economic growth and curbing productivity as soaring temperatures force firms to curtail operations, reduce working hours and increase cooling costs. The European Commission’s latest forecast shows the region’s GDP expansion could slip by as much as 0.3 percentage points this quarter, with manufacturing output and construction activity hit hardest by labor absenteeism and supply‑chain disruptions caused by extreme weather. Agricultural yields are also under pressure, with several countries reporting crop losses that could shave a further 0.2 percentage points from seasonal growth rates.

At the same time, the ongoing conflict involving Iran has pushed Europe’s energy prices higher, compounding the strain on businesses and households. Sanctions on Iranian oil and the suspension of several export contracts have reduced the continent’s access to a key alternative to Russian gas, tightening the market and lifting wholesale electricity and gas rates by roughly 12 percent since the conflict intensified. The combined effect of climate‑driven productivity losses and rising energy costs is expected to delay the region’s post‑pandemic recovery, prompting policymakers to consider both short‑term relief measures and longer‑term investments in resilient infrastructure.