IMF Working Papers

The European continent is warming at more than twice the global average. The human and economic costs of higher temperature and more frequent and extreme natural disasters—already substantial in Europe—are expected to increase further unless suitable adaptation strategies are implemented. This paper shows that while Europe's overall vulnerability to climate risks is lower than other regions’, the countries in Central and Eastern Europe face greater human and economic costs from climate disasters compared to their advanced European peers, which are likely to further increase in the future. We use an ensemble of climate models to project future climates for each country in Europe, and identify the country whose present climate best approximates this projection. We rely on this information on countries’ representative future exposure to climate risks to calibrate country-level macro analyses of natural disasters, and how investment in adaptative infrastructure can help mitigate these shocks. We find that adaptation infrastructure can significantly reduce output losses from natural disasters, mitigate medium-term economic scarring, and support sustainable long-term growth. However, we show that effective implementation of adaption strategies in EMEs/LICs is likely to be constrained by limited domestic financial resources, weaker institutional quality, and may create policy trade-offs, if not accompanied by external support.