ECB Forecasts $41.4 Trillion in Global Economic Losses by 2050 Due to Natural Disasters and Climate Change
The European Central Bank (ECB) has been preparing for the long-term impacts of physical risks since 2021. It creates model-based forecasts until 2100, integrating them into its macroeconomic and credit models to bolster strategy, resilience planning, and risk management across various sectors. Meanwhile, natural disasters and climate change are posing significant economic threats worldwide.
In 2024 alone, Los Angeles wildfires caused $20-30 billion in insured damages, highlighting the financial toll of such events. The economic cost from natural disasters in the US is projected to rise by 26% compared to 2020 levels. Globally, natural catastrophes in 2024 resulted in $320 billion in economic losses, with $140 billion insured.
The ECB's projections paint a concerning picture. By 2050, US corporate operating margins are expected to decline by 2 percentage points. The US GDP could shrink by 9.5% ($6 trillion) due to physical risk, while global GDP could decrease by 14.5% without policy interventions. Moody's warns that a Category 5 hurricane striking Miami could have long-term economic consequences surpassing a typical recession. CRE loan portfolios face higher credit risk, with default probability rising 18% and expected losses increasing by $200 million.
Moody's estimates global economic losses from natural catastrophes and physical risk at $41.4 trillion by 2050. Two-thirds of these losses are expected from ongoing pressures like rising sea levels, while one-third from severe disasters. The ECB's proactive approach underscores the urgent need for robust risk management and policy interventions to mitigate these escalating threats.
