How does the climate change affect the economies of the Middle East and Central Asia

Direct material damage from climate change in the Middle East and Central Asia has amounted to $2 billion per year since 2000. A 1 degree Celsius rise in temperature in the five hottest countries (Bahrain, Djibouti, Qatar, Mauritania and the United Arab Emirates) immediately reduces per capita economic growth by about 2 percentage points.

Such impressive figures are provided by the authors of the scientific report of the staff of the International Monetary Fund, which assesses the economic consequences of climate change in the region.

Over the past thirty years, temperature in the region has risen by 1.5 degrees Celsius, twice the rise in global temperatures (0.7 degrees). This causes particularly severe damage to already hot countries.

Climate catastrophes in the region reduce annual economic growth by 1-2 percentage points per capita. As the planet warms, these phenomena are expected to become more common and more severe.

Factors of the risk

Recent climate disasters include droughts in North Africa and Central Asia; epidemics in the Horn of Africa; Cyclone Gonu in the Arabian Sea; locust infestations in the Horn of Africa, the Arabian Peninsula and the Indian subcontinent; severe winters, river floods and landslides in the Caucasus and Central Asia (CCA); and flash floods in many countries in the Middle East and Africa.

In many parts of the region, already difficult climatic conditions have deteriorated further in recent decades, and this trend will increase more than in other regions of the world.

There are three interrelated climatic factors operating in the region: higher temperatures, more erratic precipitation, and more frequent and severe climate disasters.

Changes in temperature and precipitation have already led to a decline in per capita income and a change in the sectoral structure of production and employment.

The effect of a 1°C rise in temperature on real per capita growth depends on the initial temperature in the country. It is beneficial in countries with low average annual temperatures of up to 19°C (CCA countries, Afghanistan) and detrimental in hotter countries. Especially in countries with an average annual temperature above 26°C (Gulf countries, Mauritania and Somalia).

Colder countries showed higher growth rates for about three years, while hotter countries showed lower growth rates for two years.

As average temperatures are projected to rise sharply in most ME and CA countries over the next decades, climate change could undermine economic growth in an increasing number of ME and CA countries.

More rainfall appears to favor growth only in years with below-average rainfall. The increase in precipitation generally, but weakly, increased real GDP per capita in the ME and CA countries.

At the same time, higher precipitation certainly increased growth in the ME and CA countries in years with below-average precipitation, while the opposite was observed in the ME and CA countries in years with above-average precipitation.

This highlights the risk of flooding and other adverse impacts (particularly where intra-annual precipitation variability is high) that are projected to worsen in the future due to ongoing climate change.

Sectoral structure of GDP

Weather conditions affect some industries more than others.

Agriculture

Rising temperatures have negatively affected agricultural production in the Middle East and Central Asia (which has also been observed in other regions).

The increase in rainfall can be twofold: it can either temporarily support rainfed agriculture in arid climates or damage crops and livestock in flood zones.

Services

In the short term, temperature shocks have boosted tourism in MENAP countries. However, after three years, the impact tends to become negative, indicating the existence of a critical point of excessively high temperatures, which may be exacerbated by sea level rise along the MENAP tourist coasts in the future.

At the same time, higher precipitation dampened activity in the hotel sector and boosted activity in the financial and real estate sectors.

The latter again indicates an increase in insurance activity after the weather events.

CCA countries have also experienced short-term negative trade impacts, likely due to disruptions in transport and consumer behavior following weather events.

Industry and construction

Weather disasters have negatively affected the industrial sectors of the Middle East and Africa due to a decrease in the supply of water and electricity. This likely reflects the impact of droughts on hydropower generation and damage to energy infrastructure from floods and strong winds (such as power plant flooding, dam failure, and downed trees on power lines).

Employment

Rising temperatures have led to job losses in MENAP countries but created job places in CCA. However, higher precipitation has led to rising unemployment in the Middle East and Central Asia, especially in the CCA.

The impact on employment across labor force groups and productive sectors is more heterogeneous. Weather shocks can affect some productive sectors more than others, leading to redistribution.

Rising temperatures have generally had a negative and persistent impact on agricultural employment throughout the Middle East and Africa.

This contrasts with the positive impact on employment in the service sector (and the notable impact on industry). This suggests that climate change will enhance the transition from agriculture to the service sector in the future.

The impact on tourism employment turns negative over the medium term in MENAP but remains positive in CCA. Tourism does not seem to be benefiting from rising temperatures in an already hot climate.

Climate disasters cause an immediate and sometimes even permanent decline in production. During disaster years, real per capita growth tended to decline by 1.1 percentage points in MENAP countries, but bounced back within a year without permanent repercussions.