As COP27 rumbles on, which regional economy will be most affected by climate change?

As COP27 rumbles on in Sharm El-Sheikh, Egypt, around 4,000 kilometers away a country is still reeling from a catastrophic natural disaster likely caused in part by climate change. The country is situated in the region of the world which is most vulnerable to climate change. Which is it? Read our latest insight piece to find out more.

As airplanes landed and government delegations set foot on Sharm El-Sheikh, Egypt—the host of this year’s UN climate change conference—around 4,000 kilometers away in Pakistan, many were still reeling from the floods which inundated one-third of the country earlier this year. The South Asian nation has struck a defiant tone at the COP27 conference, declaring that “What goes on in Pakistan won’t stay in Pakistan”.

South Asian countries are likely to be the hardest hit economically by climate change, due to their acute exposure to storms, floods, and sea level rise—and weak coping mechanisms. According to estimates made by S&P Global in April this year, in a scenario where global warming reaches close to 2.0 Celsius, around 15% of South Asia’s GDP could be at risk by 2050. This figure is more than twice as high as the next most at-risk region, Central Asia. Such a scenario appears increasingly likely given weaker prospects for international cooperation amid rising geopolitical tensions and domestic economic slowdowns globally.

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Indeed, our panelists forecast that Pakistan’s GDP will grow at a historically weak rate this year. GDP growth forecasts for FY 2023 have been slashed by 1.7 percentage points since the floods—which are estimated to have caused around USD 40 billion in damages and economic losses—began in June.

Elsewhere in South Asia, the economic impact of climate change was also evident in the heatwaves which seared the region last summer. Industrial output was hit by energy shortages, as the region’s power grids struggled to cope with higher energy consumption stemming from the use of air conditioning.

In South Asia and beyond, climate change—in the guise of forest fires, floods, storms and other extreme weather events—is not just a major risk for the far-flung future. It is a major risk already and something ever-present in the minds of world leaders at COP27, as they struggle to make headway to prevent one of the greatest global crises in human history.


Insights from Our Analyst Network

Analysts at EIU said:

“Most climate models currently predict that temperatures will rise by 2‑3°C by 2100. We believe that the UN's stated ambition of keeping warming to within 1.5°C is infeasible given the current policy trajectory, although the core goal of keeping warming within 2°C is still within reach. Even if warming is successfully limited to 2°C, the physical impacts would still require massive new funding for adaptation to adjust nearly all global infrastructure to a climate and outlook for natural disasters that have previously been unprecedented.”

Analysts at Fitch Solutions commented on risks:

“The Russia-Ukraine war has put added strain on climate diplomacy between major emitters (including Russia itself) and could slow progress on climate policy, as security of supply concerns distract focus. The ‘policy gap’ – the gap between current policy trajectories and a trajectory aligned with a 1.5°C pathway – remains wide, with global GHG emissions reductions falling far short of alignment with the Paris Agreement. Slower-than-expected progress on climate change mitigation, severely limited steps towards adaptation and a large and persistent funding gap continue to plague the COP conferences and we do not expect to see any major step change in the policy direction this year.”

 

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of FocusEconomics S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. FocusEconomics S.L.U. takes no responsibility for the contents of third party internet websites.

Author: Matthew Cunningham

Date: November 14, 2022

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