Filenews 7 July 2025 - by Theano Thiopoulou
One of the fears is that the heat wave will set fire to the prices of mainly agricultural products, an issue that does not only concern Cyprus, but also Europe, while European companies report a reduction in their operations, reflecting the economic impact of the high temperatures that exist. High temperatures can cause damage to crops, resulting in reduced production and an increase in prices.
Also, increased demand for refreshing foods and beverages during the heat wave can lead to an increase in prices due to limited supply or increased production costs. In addition, heatwaves can affect feed prices, which in turn affects the prices of animal products.
The relationship between the heatwave and key economic indicators, such as inflation and GDP, is too important to ignore, according to Frank Elderson, a member of the European Central Bank's Executive Board. "We have understood that taking climate crises into account is important. If you consider the extremely hot summer of 2022, food inflation rose between 0.4 and 0.9 percentage points... and there has been a measurable blow to German GDP," Eldersson said in an interview in Sintra, Portugal. These statements coincided with the emergence of another heatwave in Europe, much of which is suffering from unusually high temperatures due to climate change. Heatwaves can cause inflation waves, mainly because crops are affected and food prices rise.
In his speech at the International Monetary Fund staff group meeting, he said that in the 2021 review of the Monetary Policy Strategy, the ECB's Governing Council recognised the importance of climate change for monetary policy. This has led to the creation of a concrete climate action plan, on which the ECB and the Eurosystem have made significant progress over the past four years.
As I have repeatedly stressed in the past, he said in his speech "this does not mean that we are the policymakers for climate and nature. These policies are set by governments and it is their privilege to deal with the climate and natural crises. We are responsible for climate and nature policy-making. At the same time, as I will argue in more detail, we have no choice but to take into account the effects of the climate and natural crises in order to implement our mandates for monetary policy and banking supervision."
He pointed out, among other things, that "ECB research showed that 72% of euro area companies depend on at least one of nature's ecosystem services. These services are declining at a faster rate than at any other time in human history. Further research by the ECB and the University of Oxford's Resilient Planet Finance Laboratory is looking at the risks more closely. The first results show that 15% of the output of the euro area economy is at risk from water scarcity alone, and more than €1.3 trillion of euro area bank loans are currently being granted to sectors exposed to high risk of water scarcity."
Nature is an asset
In his speech, he explained that the climate has a significant impact on our economy. "Nature, on the other hand, encompasses the entire natural environment of the earth, including all living organisms. It is everything that has not been created by man. Thus, by adding the 'degradation of nature', we are now committed to taking into account a much more complex set of factors when determining our monetary policy," he noted. "From a central bank's perspective, nature is an asset. It provides many ecosystem services – fertile soils, timber, fish stocks, water and clean air, to name just a few – supporting sustainable economic growth and financial stability. If ecosystems degrade, we are essentially underestimating a vital input into our economy."
