Global warming could have a lasting impact on Italy's economic growth and the sustainability of its public finances. This is the conclusion of a recent analysis by the CMCC – Euro-Mediterranean Center on Climate Change – in collaboration with Deloitte Climate & Sustainability and the European University Institute. The study finds that, without adequate climate policies and adaptation measures, Italy's GDP could be up to 6 percentage points lower by 2050 than in a scenario without climate-related damages.
The impact goes beyond lost economic output: weaker growth also affects public finances, making the debt-to-GDP ratio harder to contain.
"This is the first study to quantify climate risk for public finances in Italy," explains Massimo Tavoni of the CMCC, where he is Director of the European Institute on Economics and the Environment and an author of the study. "We find that climate risk is also a sovereign risk," Tavoni explains, "with macroeconomic impacts that spill over into public finances, and add pressure to existing economic and fiscal vulnerabilities."
Italy: hotter climate, weaker growth
For Italy, estimates point to a significant impact as early as the middle of the century. By then, Italy's GDP level is projected to be lower than in a scenario without climate damages by between around 1.6% and 4.2% in the high-growth scenario, and by between 2.2% and 6.0% in the trend scenario with higher temperatures. In a country such as Italy, where growth is already structurally low, this translates into a loss of growth that could reach 15%.
The difference becomes particularly significant over the full twenty-five-year period considered: lower growth reduces the tax base, makes the debt-to-GDP ratio harder to improve, and affects overall fiscal dynamics.
Climate and public finances: an inseparable link
"Our study highlights effects of climate change that are too often overlooked," says Carlo Carraro, president emeritus of Ca' Foscari University of Venice and one of the founders of the CMCC. "The increase in the debt-to-GDP ratio and the higher riskiness of debt lead to an increase in interest rates—an increase that we could call a climate spread. The rate the State must pay to finance public debt is therefore higher as a consequence of climate risk. This means higher costs for the State, and therefore higher taxes or higher debt, in a vicious circle that affects the cost of all financing for households and businesses."
These GDP losses affect public finances in several interconnected ways. Weaker growth tends to increase the debt-to-GDP ratio, reduces available fiscal space, and makes it harder to manage debt sustainability over the medium and long term.
Two main messages emerge from the analysis. First, climate-related damages increase risks to the sustainability of public finances, especially in scenarios with higher temperature increases. Second, climate risk amplifies existing vulnerabilities, spreading from the wider economy to public finance. The sovereign risk premium— already high because of Italy's elevated debt—widens as a result of the climate spread.
The analysis therefore shows that mitigation and adaptation are essential tools for protecting economic growth and financial stability.
"For a country like Italy, exposed to both climate impacts and public finance constraints, delaying action means increasing the economic cost of global warming," explains Matteo Calcaterra of the CMCC and an author of the research. "Our results show that mitigation and adaptation are not only tools for environmental protection, but key drivers of macroeconomic and financial stability: acting promptly to address the climate crisis means protecting the country's growth trajectory and the long-term sustainability of its debt."
Europe: asymmetric losses and already high costs
Across Europe, the economic impacts of climate change are unevenly distributed. Southern and eastern Europe are more exposed to the effects of global warming, with more pronounced consequences for productivity, infrastructure, and local economies.
Weather and climate extremes are already imposing high costs. Between 1980 and 2024, extreme events caused estimated economic losses of €822 billion in the European Union. The last four years are among the five years with the highest losses in the entire historical series: overall, the 2021–2024 period recorded losses of more than €208 billion, over 25% of the total recorded over the past 45 years.
These estimates mainly concern losses to physical assets and do not capture the full range of indirect, health-related, productivity-related, and distributional costs associated with climate change.
Heat, labour, and drought: the channels of economic damage
A growing share of Europe's economic damage is associated with extreme heat and drought. Heatwave-related losses, measured in terms of reduced labour productivity, are estimated at between 0.3% and 0.5% of European GDP, with impacts exceeding 1% in several particularly vulnerable regions.
Projections also indicate that, by the 2060s, these losses could exceed 1.1% of European GDP in the absence of further adaptation.
For drought, in a scenario without further climate action and without adaptation, annual losses for the EU and the United Kingdom could rise from the current €9 billion to more than €65 billion a year in a 4°C world, with a marked geographical concentration in southern and western Europe.
CMCC – Euro-Mediterranean Center on Climate Change – is a non-profit, international and multidisciplinary research center that produces advanced knowledge on the effects of climate change and how we can make natural systems, economies, and societies more resilient. As a leading hub for climate science, CMCC is a key contributor to global assessments, hosting the National IPCC Focal Point for Italy and supporting IPCC report work with its scientific expertise.
CMCC's dedicated supercomputing center runs advanced global and regional climate simulations, producing state of the art knowledge and climate insight for global impacts. From extreme events to climate predictions and solutions, in the Mediterranean region and beyond, CMCC research unpacks the complexities that shroud climate issues.
