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. The methodology integrates human-induced factors— proxied by GHG emissions— with natural climatic oscillations. Using the European Extreme Events Climate Index (E3CI) and its seven subcomponents for 40 European countries since 1981, the study finds a highly nonlinear relationship between GHG emissions and worsening extreme weather, driven by a dominant common component consistent with global climate dynamics. Building on these results, dynamic panel regressions within an Autometrics and model-averaging framework reveal significant contractions in GDP growth, with the largest effects in the services sector, and identify extreme wind and precipitation events as 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 wild res and extreme temperatures.