Extreme Weather in Europe: Determinants and Economic Impact

This paper investigates the relationship between anthropogenic greenhouse gas (GHG) emissions and extreme weather conditions in Europe using a novel panel regression trend–cycle decomposition approach. Using the European Extreme Events Climate Index (E3CI) and its seven subcomponents for 40 European countries since 1981, the study finds a significant statistical association between extreme weather deterioration and both the flow and the stock dimensions of global greenhouse gas emissions. Building on these results, dynamic panel regressions within an Autometrics and model-averaging framework reveal significant contractions in GDP growth determined by worsening climatological conditions. The largest effects are observed in the services sector, and extreme wind and precipitation events are the most damaging. Climate deterioration operates through both supply and demand channels – particularly via private spending and productivity – and contributes to structural economic divergence across Europe. Effective mitigation and sustainable economic development are the most powerful tools to counter these adverse effects, while adaptation and institutional improvements serve as second-best measures, particularly against wildfires and extreme temperatures.