Climate shock: Global economy faces 40% contraction risk

The climate crisis coincides with an economic crisis. Climate change may have a much larger impact on the global economy than previously anticipated. New studies that consider the global reach of extreme weather events demonstrate that earlier forecasts were overly optimistic. Economic models often assumed that a country's economy was influenced only by local weather conditions, overlooking the impact of events in other parts of the world.

Considering the global effects of extreme weather events, the predicted decline in global GDP is much greater than previously assumed. If the Earth's temperature increases by more than 5.4°F by the end of the century, the economic damage could reach 40 percent. Until recently, researchers suggested that in the least optimistic scenario, the GDP decline at the end of the century would be 11 percent. The worsening economic situation and the advancing climate disaster will significantly impact people worldwide.

Climate change can disrupt production and supply networks, limiting the possibilities for mutual assistance between countries. International trade is crucial for global economic production, and our research indicates that a warm year worldwide leads to lower global growth.

Reducing emissions involves short-term economic costs that need to be balanced with the long-term benefits of avoiding dangerous climate change. The optimal amount of global warming that balances these costs and benefits is 3.1°F, aligning with the most ambitious goal of the Paris Agreement.

Our research suggests that previous projections of the impact of warming on the economy were underestimated. The level of emissions threatens the future for current and future generations. Climate warming is a complex problem that affects all inhabitants of Earth; however, to avoid the worst-case scenario, systemic changes and cooperation between economies are essential.