How Climate Warming Shapes Future GDP: IMF’s Framework for Long-Term Projections

The IMF How-To Note explains a practical method for integrating rising temperatures into long-term GDP projections using climate-model scenarios and empirically estimated impacts on economic growth. It shows that accelerating warming trends can significantly erode future output and alter fiscal and debt dynamics if not incorporated into baseline forecasts.

Climate change is emerging as a structural force reshaping long-term economic trajectories, and a new IMF How-To Note, drawing on research from the International Monetary Fund, the Intergovernmental Panel on Climate Change (IPCC), CMIP6 climate-modeling centers, and academic institutions behind studies such as Kahn et al., offers a practical blueprint for incorporating rising temperatures into GDP projections. The document stresses that warming affects economies gradually but profoundly. Higher temperatures reduce agricultural yields and labor productivity, heighten mortality, stress water and energy systems, and accelerate the depreciation of infrastructure. Sea-level rise threatens coastal assets, while changing consumption needs and investment uncertainty alter demand patterns. These slow-onset impacts compound over decades, and countries that ignore them risk crafting fiscal and debt projections that are systematically too optimistic.

Why Temperature Trends Matter More Than Temperature Levels

A central insight of the note is that macroeconomic damage depends less on absolute temperature and more on how quickly temperatures deviate from historical norms. The authors adopt the methodology of Kahn et al. (2021), which measures the effect of annual temperature deviations from a 30-year moving average. Because these norms reflect the climate conditions societies have adapted to, deviations represent the portion of warming that remains economically disruptive. If warming accelerates, deviations widen and GDP losses compound; if warming slows, losses shrink. This approach avoids the econometric pitfalls of regressing GDP growth on trended temperature levels and uses the Half-Panel Jackknife estimator to correct bias in fixed-effects panels. The IMF authors reject unrealistic “no further warming” baselines and instead compare future temperatures to each country’s own historical trend from 1960–2014, capturing past adaptation and existing warming already baked into economies.

Climate Scenarios Shape the Future Economic Landscape

The note’s projections rely on the IPCC AR6 warming scenarios, SSP1-2.6, SSP2-4.5, and SSP3-7.0, plus an extreme 90th-percentile warming path. These scenarios draw on dozens of global climate models, producing country-specific warming trajectories to 2100. Once fed through the empirical model, they generate projected GDP deviations for each future year. The report shows that uncertainty widens dramatically by the end of the century: fast-warming pathways combined with slow adaptation produce large and volatile losses. Confidence intervals, absent in earlier studies, sharply illustrate this compounding uncertainty. Adaptation speed becomes a key determinant of outcomes: shorter temperature-norm windows, representing faster societal adjustment, reduce losses, whereas longer windows magnify them. In severe combinations of high emissions, rapid warming, and sluggish adaptation, GDP losses can become economically transformative by 2100.

Integrating Climate Impacts Into Fiscal and Debt Projections

The note demonstrates how climate-adjusted GDP paths can be directly incorporated into macro-fiscal analysis. Lower GDP levels feed into higher projected debt-to-GDP ratios, steeper fiscal pressures, and reduced long-term fiscal space. An illustrative example shows how a debt trajectory that appears stable under conventional projections becomes riskier once climate-adjusted GDP losses are included. This has direct implications for debt sustainability analysis, public investment planning, long-run budget forecasting, and assessments of economic resilience. The appendix provides detailed results for 171 countries, showing GDP deviations in 2050 and 2100 under each scenario. Some nations face modest losses under low-warming paths, while others, especially hot, low-latitude countries, see reductions of five percent or more under high-warming futures.

A Practical Framework With Clear Policy Relevance

Although the note focuses on temperature, it acknowledges that climate change includes many additional risks, shifts in precipitation, changing cyclone patterns, extreme weather events, and sea-level rise, which also carry macroeconomic consequences but lack the robust global empirical foundations needed for inclusion. Catastrophic tipping-point risks remain outside its scope due to scientific uncertainty. Even so, the framework offers policymakers a practical, empirically grounded method to incorporate climate damages into baseline macroeconomic projections. Tools such as the IMF’s Q-CRAFT already rely on these estimates to assess long-term fiscal risks. The report’s message is clear: rising temperatures are already shaping economic futures, and integrating these effects into national planning is not optional. It is a necessity for credible forecasting in a rapidly warming world.