Climate change may decrease Italy’s gross domestic product by as much as 6% until 2050 while putting even more pressure on public finances, according to research by the Euro-Mediterranean Center on Climate Change (CMCC). In its report Climate Risk and Sovereign Debt: Assessing the Macroeconomic and Fiscal Impacts of Climate Change in Italy, the authors consider the influence that climate warming and the growing number of extreme weather phenomena can have on economic growth and fiscal situation.

According to their estimates, the effect of climate change on Italy’s GDP would lead to a decrease ranging from 2.2% to 6% in a high-emission scenario in comparison with the case when climate change doesn’t cause any damage until 2050. In a positive economic scenario, the estimated loss will range from 1.6% to 4.2%.

The study further shows the likelihood of fiscal stress as well. Reduced economic growth would mean fewer revenues in addition to higher costs due to disasters, which would involve repairing infrastructure and adjusting to climatic impacts. This study also introduces the concept of "climate spread," which refers to the extra amount of interest rates that investors might charge for government securities as the climate changes become riskier, increasing the cost of borrowing.

In Italy, its national debt is estimated at roughly 138 percent of its GDP, ranking among the highest figures within the eurozone. As pointed out in this study, climatic damages would increase the refinancing risks of a country should the level of emissions continue to rise and adaptation be slow. In certain circumstances, this risk would double by mid-century.

This report follows southern Europe, whose regions have experienced heatwaves, droughts, and other extreme climatic events that have had an adverse impact on agriculture, tourism, labor productivity, and infrastructure. Southern and eastern European countries are predicted to experience stronger economic impacts than others due to the rising temperatures and water scarcity they will experience.

The report was compiled jointly by CMCC with the support of Deloitte Climate & Sustainability and the European University Institute. The report identifies climate change as a problem not only in terms of the environment but also in terms of finance and economics, having repercussions on the prospects for growth, government debt, and financial stability. It emphasizes that actions taken to cut greenhouse gas emissions and build resilience may help prevent economic losses in the future, while procrastination will make costs higher.