Australia: Imagine waking up in a world where nearly half of your wealth has vanished-not because of a financial crash, but because the planet kept getting hotter.
A new study warns that unchecked global warming could leave the average person 40 percent poorer; a staggering blow that far exceeds previous economic forecasts.
A study by Australian scientists, suggests that even if warming is limited to 2°C above pre-industrial levels, global GDP per person could shrink by 16 percent. This stark contrast to earlier projections, which estimated a mere 1.4 percent reduction, underscores the inadequacies of current economic forecasting methods.
The research critiques the widely used integrated assessment models (IAMs), which guide government policies on climate investments. These models, fail to account for the widespread disruption caused by extreme weather events.
The study improved one of the most commonly used IAMs by integrating climate change forecasts that reflect the cascading impact of extreme weather on global supply chains.
Dr. Timothy Neal, lead author from the University of New South Wales (UNSW) Institute for Climate Risk and Response, highlighted that, “In a 4°C world—considered catastrophic by many experts- our study finds people would be 40 percent poorer, compared to only 11 percent under older models,” he said.
He added that economic assessments often focus on localized weather impacts while ignoring global supply chain disruptions triggered by droughts, floods, and other climate extremes.
While some economists argue that warming might benefit colder regions such as Canada, Russia, and northern Europe, Neal dismissed this notion. “Global economies are interconnected, when one region suffers, the effects ripple worldwide,” he said.
A January report from the Institute and Faculty of Actuaries- the body advising global insurers and pension funds-criticized traditional economic risk assessments for failing to factor in tipping points, extreme events, migration, sea level rise, and geopolitical risks. “Flawed projections reinforce the false narrative that climate change is a slow-moving issue with limited financial impact, rather than a severe crisis demanding immediate action,” the report stated.
Mark Lawrence, a University of Adelaide professor specializing in climate risk, said the study’s conclusions were credible. “If anything, the economic consequences of climate change could be even worse than estimated,” he said. He also warned that underestimating climate damage means policymakers fail to recognize the potential economic benefits of urgent climate action.
