In an era where extreme weather events are becoming the new normal, the question “Is climate-driven change really costing Europe money?” is more pressing than ever. As heatwaves scorch farmlands, droughts cripple water supplies, and floods devastate infrastructure, the European Union (EU) is grappling with mounting economic pressures. Recent revelations from a Pakistani researcher’s alarming report shed light on the staggering financial burdens, projecting losses that could reshape the continent’s economy for years to come. Led by Dr. Sehrish Usman, this study not only quantifies the immediate hits but also uncovers long-term scars that threaten productivity, employment, and regional stability.
Who Is Dr. Sehrish Usman?
Dr. Sehrish Usman, a trailblazing Pakistani economist, stands at the forefront of understanding how climate change intersects with finance and regional development. As the Chair of Finance at the University of Mannheim in Germany, she brings a unique global perspective to her work, shaped by her roots in Pakistan and her rigorous academic journey. A former student of the National University of Sciences and Technology (NUST) in Pakistan, where she earned her Bachelor of Business Administration in 2009, Usman honed her skills in quantitative economics during her Master’s studies there from 2013 to 2015. Her thesis explored monetary aspects of minimum wage and employment, laying the groundwork for her expertise in macroeconomic modeling.
Usman’s path led her to Europe, where she completed an M.Sc. in Quantitative Economics in 2022 and a Ph.D. in Economics from Goethe University Frankfurt in May 2025. Since 2025, she has served as a postdoctoral researcher and Assistant Professor at the Chair of Finance and Corporate Governance at the University of Mannheim, focusing on household finance, family economics, and now, the economic ramifications of climate risks. Her transition from NUST’s engineering-focused environment to Europe’s top economic institutions underscores her adaptability and commitment to addressing real-world challenges.
What makes Dr. Usman’s research extremely important? In a field dominated by Western perspectives, her work bridges developing and developed economies, highlighting vulnerabilities that transcend borders. By applying advanced econometric tools to climate data, she provides evidence-based insights that challenge policymakers to prioritize adaptation over inaction. Her studies, often co-authored with experts from the European Central Bank (ECB), have influenced EU-wide discussions on resilience, proving that climate economics isn’t just academic—it’s a blueprint for averting fiscal catastrophe. As Europe faces escalating weather extremes, Usman’s Pakistani heritage adds a layer of urgency, reminding us that climate change is a global equalizer, hitting vulnerable regions hardest first.
Revelations in Alarming Report:
Dr. Usman’s latest extended study, building on her 2024 ECB working paper “Going NUTS: The Regional Impact of Extreme Climate Events Over the Last Decade,” delivers shocking revelations about the 2025 summer’s extreme weather onslaught. Analyzing 1,160 EU regions at the NUTS-3 level (a granular classification for sub-national areas), the research integrates real-time 2025 weather data with historical benchmarks from 1995–2022. Using a local projections difference-in-differences (LP-DiD) framework and growth accounting methods—assuming a Cobb-Douglas production function—she isolates the causal effects of heatwaves, droughts, and floods over a five-year horizon.
Key revelations include:
- Immediate Short-Term Losses: The 2025 events—heatwaves, droughts, and floods—affected approximately 25% of EU regions, causing at least €43 billion in direct economic damages this year alone. This equates to nearly 0.5% of the EU’s GDP, with sectors like agriculture and tourism hit hardest due to crop failures and halted operations.
- Medium- to Long-Term Projections: By 2029, cumulative losses could balloon to €126 billion, driven by persistent drags on output, investment, and labor markets. For instance, heatwaves reduce regional output by 1.4 percentage points four years post-event, while droughts inflict a 2.4 percentage point hit—effects that compound over time rather than fade.
- Sectoral and Demographic Insights: The report reveals uneven sectoral blows: Agriculture suffers yield drops from droughts (up to 2.4% output loss in low-income areas), manufacturing sees initial dips followed by costly adaptations like air conditioning (which boosts capital but lowers total factor productivity), and services face long-term declines in hot regions. Demographically, heatwaves and droughts trigger population outflows—up to 4% net migration loss after four years—exacerbating labor shortages and aging populations.
- Regional Disparities: High-income regions rebound from floods via reconstruction booms, but low-income areas lag, widening intra-EU inequalities. Inland regions invest more in heat adaptations than coastal ones, yet overall, colder baseline climates amplify heatwave damages.
These findings mark the first comprehensive quantification of how 2025’s events are already embedding climate risks into Europe’s economic fabric, using clean treatment-control comparisons to rule out confounding factors like concurrent disasters.
The Hidden Threats Lurking Beneath
Dr. Usman’s report doesn’t just tally costs—it exposes the dangerous undercurrents that could destabilize Europe if unaddressed. Among the most alarming aspects:
- Persistent Productivity Scars: Unlike temporary disruptions, extreme events erode total factor productivity (TFP) for years, with droughts slashing it by up to 2.4% long-term. This “scar effect” hampers innovation and efficiency, turning one-off events into chronic drags on growth.
- Demographic and Labor Crises: Population declines from out-migration—particularly after droughts—threaten Europe’s already strained demographics. With fewer workers, regions face labor shortages, higher dependency ratios, and slowed economic recovery, potentially fueling social tensions.
- Income and Regional Divides: Low-income regions, often in southern and eastern Europe, bear disproportionate burdens without the financial buffers for adaptation. Floods spark booms in wealthy areas but stagnation elsewhere, risking a “two-speed” EU where disparities fuel political unrest.
- Underestimated Compounding Risks: The study conservatively excludes multi-year droughts, repeated events, and overlaps (e.g., heatwave-plus-flood), meaning real impacts could be far worse. As climate models predict more frequent extremes, these could amplify existing challenges like low productivity and aging, pushing some regions toward recession.
- Sectoral Vulnerabilities: Agriculture’s collapse from droughts threatens food security, while services’ long-term hit (e.g., tourism in heat-prone areas) could spike unemployment. Adaptation investments, like cooling infrastructure, often prove less productive, diverting resources from sustainable growth.
These dangers underscore that climate-driven change isn’t just an environmental issue—it’s a ticking economic time bomb, with €126 billion in projected losses paling against unmodeled cascading effects like supply chain breakdowns.
The Broader Effects on Europe:
Zooming out, Dr. Usman’s research illuminates how climate-driven change is eroding Europe’s economic foundations. Short-term shocks like the €43 billion hit in 2025 strain public budgets, inflating insurance premiums and disaster relief costs—Catalonia alone faces €1 billion in immediate heat-related damages, scaling to €6 billion medium-term. Agriculture, a €400 billion industry, sees yields plummet, driving food inflation and import dependencies.
Longer-term, the €126 billion toll by 2029 could shave 0.5–1% off annual GDP growth, per extrapolated models, hitting employment (reduced hours and jobs) and investment. Regions like southern Spain or Italy, prone to droughts, may see tourism evaporate, while northern floods disrupt transport hubs. Politically, widening north-south divides could strain EU cohesion, as adaptation funding battles intensify.
Yet, not all angles are doom: High-income areas show resilience through capital inflows, suggesting targeted investments (e.g., green infrastructure) could mitigate losses. Still, without aggressive policies—like the EU’s Green Deal expansions—these costs risk becoming irreversible.
Global Implications:
Europe’s plight isn’t isolated; Dr. Usman’s findings ripple globally. As the world’s largest single market, the EU’s slowdown could dampen global trade—think reduced demand for exports from Asia or the Americas, potentially costing the world economy trillions in foregone growth. Food price spikes from European agricultural woes would exacerbate hunger in developing nations, including Pakistan, where Usman’s roots highlight interconnected vulnerabilities.
Moreover, migration outflows from affected EU regions could pressure global labor markets, while Europe’s adaptation push (e.g., €1 trillion in green investments) sets precedents for international climate finance. If unheeded, rising extremes could trigger “climate refugees” and supply chain chaos, amplifying costs in vulnerable spots like South Asia. Usman’s work emphasizes that ignoring these signals risks a domino effect: Europe’s €126 billion loss today could balloon into global instability tomorrow.
Climate-driven change
Is climate-driven change really costing Europe money? Dr. Sehrish Usman’s alarming report leaves no doubt: Yes, and the price tag—€43 billion now, €126 billion by 2029—is just the beginning. From productivity scars and demographic shifts to widening inequalities, the dangers are profound, demanding urgent adaptation. As a Pakistani researcher bridging continents, Usman’s insights are invaluable, urging the EU and the world to invest in resilience. By heeding her revelations, Europe can turn this crisis into an opportunity for sustainable prosperity—before the costs become unpayable.
