World’s GDP could drop nearly 4.4% annually by 2050 due to global warming

Global warming could result in up to 4.4 per cent annual drop in world’s gross domestic product by 2050 if temperatures don’t stay well below 2°C, according to a new report.

Physical risks from climate change are increasing and their economic and financial impacts are likely to rise, particularly if countries don’t step up investment and reinforce adaptation and mitigation efforts, S&P Global Ratings said.

To assess the economic impact of physical climate risks, S&P applied four shared socioeconomic pathways (SSP) scenarios.

SSPs are a set of scenarios for projected greenhouse gas emissions and temperature changes, and include changes in socioeconomic systems, including population growth, economic growth, resource availability, and technological developments.

The SSP scenarios are: SSP1-2.6, SSP2-4.5, SSP3-7.0 and SSP5-8.5. In the SSP1-2.6 scenario, the rating agency estimates that 3.2 per cent of global gross domestic product may be at risk annually.

SSP1-2.6 is a low-emissions scenario in which the world shifts gradually but consistently towards a more sustainable path.

Under SSP5-8.5, where emissions are high, the report estimates the risk to global GDP could rise to 5.1 per cent.

Lower and lower-to-middle income countries are most vulnerable, least ready to adapt and require the most investment to build resilience to climate risks, it said.

The report comes ahead of this week’s Cop28, the UN climate summit in the UAE where world leaders, government officials, policymakers and top executives from the financial and corporate world will attempt to tackle the escalating emergency by trying to agree on ways to halt global warming, adapt to a changing climate and decide on who should foot the bill for the damage already caused.

Climate change will increasingly disrupt economic activity, mainly through the supply side, the rating agency said.

Acute physical climate risks could manifest as more sudden, negative supply-side shocks, which increase output volatility, it said.

The report noted that exposure to the most adverse risks resulting from climate change differs across regions and income groups.