Climate change is expected to significantly impact the global economy in the coming decades, said International Monetary Fund (IMF) yesterday.
Against the background of the December 2015 Paris Agreement, IMF takes stock of the wide-ranging implications for fiscal, financial, and macroeconomic policies of coming to grips with climate change.
“Some small island states and coastal countries (Bangladesh, Cambodia, China, Egypt, Guyana, Mauritania, Suriname, Thailand, Vietnam) could lose 10% of GDP or more under high sea level scenarios,” IMF said, referring to a report of Dasgupta and others 2007, World Bank 2013.
It said rising sea levels could also increase the risks of storm, surges and tropical cyclones, particularly in the Caribbean.
Projected water stress (from enhanced evaporation and precipitation variability) is greater for drier climates.
Nearly, 80% of LDCs (and 50% of small developing states) are assessed as highly or extremely vulnerable to climate change, with limited “readiness” to leverage adaptation investments, compared with 40% in the rest of the world, it noted.
“This highlights the need for prioritising resilience-building actions. Within countries, the areas inhabited by the poor and other vulnerable groups are often the most sensitive to climate impacts.”
The IMF said temperature increases and other physical effects would translate into significant market impacts, with output losses through effects on climate-sensitive sectors (for example, agriculture, forestry, coastal real estate, tourism).
Non-market impacts include ecosystem disruption, health damages, water stress, etc.
Most vulnerable to negative effects are sub-Saharan Africa (SSA), South East Asia (SEA), and Middle East and North Africa (MENA), while risks for the United States, Europe (EUR), and China are generally more moderate, it said.
It said LICs and small states are often the hardest hit by natural disasters, which are expected to increase in frequency and severity. Over the period 1985–2015 (and accounting for country size), LICs are hit about one and a half times as often by climate-related disasters: floods, storms, and droughts.
It added that the proportion of the domestic population affected by natural disasters is also higher compared with other countries, particularly for small developing and low-lying coastal states. And within LICs, the poorest 25th percentile of countries faces the highest natural disaster risks.
Referring to a report, IMF said in LICs a 1°C rise in temperature from a country’s mean temperature reduces economic growth by 1.3 percentage points on average, mainly by reducing agricultural output.
Rising temperatures and greater rainfall volatility together with more frequent extreme weather events reduce agricultural productivity in LICs, an important growth channel given agriculture’s large share in output.
It said exposure to climate change and related extreme weather events affects tourism. Climate change is expected to affect tourists’ destination choices, creating different patterns of tourism flows at the regional level. Losses are expected for most developing countries while high-latitude advanced economies would gain.
The impact on agriculture and food, water, and energy security could translate into significant migration pressures and heightened conflict risks, with economic impacts in many regions.
The scale of internal and international migration is expected to rise with the combined pressures of climate change and environmental degradation.
Physical impacts related to climate change could increase fragility and conflict by creating or exacerbating food, water and energy scarcities, and triggering migration, it said.
“These potential GDP and growth impacts, for both developing and advanced economies, are not considered in standard models of the economic effects of climate change.”
While global economic effects will be significant, uncertainty about the magnitudes stems from several sources, the IMF said.
These include the uncertainties in models projecting the impact of climate change on the environment, the challenges of mapping those changes into economic effects, and in accounting for future adaptation strategies and technical innovation in mitigating those effects.
