Italian GDP could fall by 9.5% by 2100 due to climate change

October 28, 2022|Written by |Bank of Italy

Italian per capita GDP could fall by up to 9.5% by 2100 as a result of climate change, a Bank of Italy (BoI) research project has found. The agriculture sector is particularly exposed, the study shows, with an increased frequency and intensity of drought, heavy rains, hailstorms and other extreme weather events expected to cut production significantly.

Launched earlier this month, the project consists of 17 papers focusing on the physical climatic impacts on different sectors, markets and socio-economic outcomes. It also examines the effectiveness of environmental policies intended to mitigate and adapt to these effects, with an emphasis on carbon pricing mechanisms.

Climate models predict that the Mediterranean area will experience warming 20% higher than the global average and that Italy will see an increase in temperature of 2°C or higher by 2050. However, Italy is already feeling the effects of global heating. In July the Italian government declared a state of emergency in the northern region as the worst drought for 70 years affected nearly a third of Italy’s agricultural production.

The BoI research also highlights the vulnerability of the tourism sector, with Alpine ski resorts impacted by reduced snowfall. The real estate market is also affected as high temperatures discourage potential buyers. Climatic effects on individuals are also examined, showing that poor air quality causes a greater number of accidents at work, especially in outdoor activities. The analysis also reveals an effect on student performance – temperatures over 30ºC lower test results, especially in mathematics, and increase students’ emotional stress.

Historical research shows that the relationship between average temperature and Italian GDP per capita is non-linear, and at about 15ºC the relationship becomes significant and negative. Using an intermediate emissions scenario, Italian GDP per capita in 2100 will be between 2.8 and 9.5% lower than in the baseline scenario, the authors estimate, equivalent to a reduction in the annual growth rate from 2% to between 1.97% and 1.85%.

The research project is a first step in climate-related analysis that the central bank intends to conduct in the coming years. Further research will focus on the effects of the green transition on price dynamics, the distribution of workers across sectors and occupations, financing relationships between firms and banks, and the conduct of monetary policy.

This page was last updated October 28, 2022

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