2023-07-24 17:59:19
The expected increase in the intensity, number, and duration of the extreme weather phenomena in the coming years will have longer-term negative credit effects, including making Mediterranean countries, such as Spain, less attractive as a tourist destination, as well as increased pressure on prices and public accounts or greater volatility in energy prices, according to Moody’s Investors Service.
“While the economic and fiscal costs remain manageable in the short term, the projected increase in the number, intensity, and duration of extreme weather events in the coming years will have longer-term negative credit effects“, warns the risk rating agency.
In this sense, although agriculture plays a small role in the economies of Italy, Croatia, Greece or Spain, so it is likely that the current heat wave will have relatively limited economic implications, Moody’s warns that it could affect the food prices y al turismo.
In this sense, it is worth noting that the aforementioned countries are important suppliers of olives, grapes, cereals and fruitsand production shortfalls will put pressure on food prices, recalling that, in 2022, high temperatures reduced the EU cereal harvest by 10.2% compared to the last five years.
Likewise, “heat waves can reduce the attractiveness of the on from Europa as a long-term tourist destination” or, at least, reduce demand in summer, which would have negative economic consequences given the importance of the sector.
On the other hand, Moody’s points out that hot and dry weather conditions will also affect the countries of the north Europewhere supply chains are affected by the drop in flow on the main river transport routes, which has driven up prices transportation costs across the Rhine and causing a drop in traffic.
In addition, the agency warns that the generation of electricityparticularly hydro, is also negatively affected by heat and drought, while severe weather conditions will increase price volatility as countries turn to alternative fuels or imports.
FISCAL IMPACT
In its analysis, the risk rating agency considers it likely that governments will extend the support to affected regions if extreme weather conditions persist.
In this sense, he adds that the heat increases the risk of forest fireswhich increases the costs for public coffers, and remember that the damage caused by forest fires in 2022 will cost at least 2,000 million euros, according to EU estimates.
“Adaptation measures to strengthen resilience to extreme weather-related events will require significant, but manageable, public spending,” the agency notes.
According to the European Commission, to limit the increase in global temperatures to 1.5C above pre-industrial levels, investments in adaptation will be around 40 billion a year or 0.3% of EU GDP.
“In the absence of such measures to cushion the negative fiscal implications of weather-related events, the EC believes that the cost of extreme weather events will have consequential fiscal effects,” it notes.
If global mean temperatures rise by around 1.5C above pre-industrial levels, the EC estimates that debt ratios would be 4.5 percentage points higher in Spain by 2032, 2.6 percentage points higher in Greece and 2.2 percentage points higher in Italy, mainly as a result of the economic and fiscal costs of extreme weather events.
In a scenario in which global average temperatures rise by 2C, debt ratios are estimated to rise an additional 0.4 percentage points on average.
Thus, while the fiscal impact appears relatively small, particularly in comparison to other challenges for European sovereign issuers, such as the agingHowever, Moody’s warns that more frequent and intense weather events will add to a number of competing spending priorities, such as financing the green transition and rising costs of aging, “resulting in increasing pressures on public finances.”
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