Heat and the Economy: A Moving Game

A recent report by Allianz Research has put numbers to the economic impact of heat waves. According to its calculations, excessive heat this summer could subtract up to 0.5 percentage points from European GDP, and in countries like Spain, up to 1.4 points.

I would like to congratulate the authors of this study; it was carried out with great methodological rigor. It is a technical exercise based on parameters verified by academic literature. The calculation combines temperature data (days with temperatures above 32°C), its geographical distribution, and elasticities derived from previous studies that relate extreme heat with labor productivity and economic cost.

Although approximate, this type of exercise is part of the standard arsenal of social science researchers. If it is not quantified, it is not diagnosed, and it is also not acted upon.

Now, having said that, we must remember a fundamental idea: the economy is movement. The economy is not a closed mathematical function. It's a live chess game. If you threaten the queen with the knight, the other party will move the bishop, and the board will change. The economy is a chain of decisions.

What this report tells us is not only that heat reduces GDP, but that extreme climates are already forcing us to transform the way we produce, work, and organize the economy. What's interesting is not the figure, but what it anticipates.

If heat, as Allianz warns, makes labor more expensive, reduces productivity, or prevents working during certain hours, economic agents will react. Companies will not passively accept a drop in profitability. They will change schedules. They will reduce working hours. They will improve air conditioning. They will replace people with technology. They will seek new products, new services. They will modify their strategy.

What will be the final reaction? What will happen? This we don't know for sure. We can intuit decisions, but the reality and the true impact of heat on the way we produce and organize ourselves remains to be seen. This, of course, cannot be foreseen or quantified. We can only assume and make hypotheses.

And this is where the beauty—and the challenge—of economics as a social science lies. We can measure impacts, build models, anticipate trends. But what we cannot do is foresee all the future decisions that these impacts will trigger. This unpredictability does not invalidate the models: it justifies them. Because economics is, ultimately, a science of human behavior.

That's why it's so difficult. That's why it's so fascinating.