Non-technical summary of ESM Working Paper 74: The macroeconomic effects of extreme weather events in Spain: a high-frequency, regional approach

This paper studies how floods, windstorms, and wildfires affect regional economic activity in Spain, using highly granular economic and meteorological data. It focuses on Spain’s 47 continental provinces (NUTS-3 regions in EU terminology) from 2000 to 2022 and combines high-frequency economic indicators into a proxy for output per capita. Extreme weather events are identified using official declarations or definitions, while daily meteorological data are used to assess their intensity. This approach allows the authors to quantify and trace the macroeconomic effects of extreme weather events precisely when and where they hit.

The main finding is that floods and windstorms lead to meaningful and long-lasting declines in economic activity. On average, both types of events reduce regional output per capita by around 1 percent and recovery is slow, remaining incomplete after three years. Wildfires have smaller and more short-lived effects, with output falling modestly in the first year and returning to normal afterward. Employment is one of the main channels through which extreme weather events transmit to the economy – it declines after an event and recovers only gradually. Tourism, a key sector for many Spanish regions, drops sharply after floods and recover only gradually. Windstorms additionally weaken construction activity. The authors also show that regional economic conditions shape how regions cope with extreme weather events. Regions with relatively more physical capital, less fiscal space or lower insurance coverage face larger and more persistent output losses, especially after floods. 

Overall, the paper concludes that extreme weather events represent meaningful macroeconomic shocks. Findings suggest that recovery support may need to span several years, and that greater insurance coverage and targeted adaptation investment can mitigate losses. Building fiscal buffers at both regional and national levels is also crucial as climate risks intensify.