Rising temperatures and declining soil moisture are creating mounting risks for agricultural production, energy generation, transportation and global supply chains, with developing economies facing growing pressure to protect livelihoods and economic activity from increasingly severe climate conditions.
The number of days with above-average temperatures worldwide has more than doubled since the early 1980s, while worsening soil moisture conditions are threatening agricultural productivity and the availability of water for economic activities, according to a new report by the Organisation for Economic Co-operation and Development (OECD).
The report, titled Climate Action Monitor 2026, highlights the growing economic consequences of climate change, warning that the increasing frequency and intensity of extreme heat and drought are exposing populations, businesses and critical infrastructure to greater disruption.
Its findings show that the global number of days with above-average temperatures has increased by 126 per cent, with particularly sharp rises in Latin America and the Caribbean, sub-Saharan Africa, and the Middle East and North Africa, where the number has more than tripled.
The trend is significant for developing economies, particularly those dependent on agriculture and natural resources, where prolonged heat and inadequate rainfall can undermine production, reduce household incomes and increase pressure on already vulnerable communities.
The report also found that about half of the population in OECD countries is exposed to hot days, defined as days when temperatures exceed 35 degrees Celsius, every year.
Between 2021 and 2025, populations across OECD countries experienced 35 per cent more heat-stress days than during the 1981–2010 climate baseline. This represents an average increase of 17 additional days annually, underlining how quickly extreme heat is becoming a major public health and economic concern.
Beyond the immediate discomfort associated with high temperatures, prolonged exposure to extreme heat affects workers’ productivity, increases demand for electricity and water, and places additional pressure on healthcare systems.
For economies with large outdoor workforces, including agriculture, construction, mining and transportation, the implications can be particularly serious. Workers exposed to high temperatures may have to reduce working hours or slow their activities to avoid heat-related illnesses, with consequences for productivity, business operations and household earnings.
The OECD report noted that extreme weather events affect livelihoods, ecosystems and economic activity through adverse health outcomes, loss of life, displacement and disruptions to transportation, energy, water and agricultural systems.
The pressure is also becoming evident in agricultural systems, where declining soil moisture is raising concerns about the ability of farmers to sustain production, particularly in regions already experiencing water shortages.
The OECD report found that cropland soil moisture across member and partner countries was 2.6 per cent lower on average in 2021–2025 than during the 1981–2010 reference period.
Soil moisture is an important indicator of agricultural drought because it determines the amount of water available to crops for growth. When moisture levels decline, farmers may require more irrigation, while crops become increasingly vulnerable to prolonged dry spells and excessive temperatures.
The consequences extend beyond individual farms. Countries that depend heavily on agricultural production and food exports could experience reduced output and export earnings, while disruptions in major producing countries may affect international commodity prices and food availability elsewhere.
The report identified major agricultural producers and exporters, including Argentina and Brazil, as particularly exposed to the economic implications of declining soil moisture.
Brazil, for instance, has experienced a decline in cropland soil moisture alongside increased exposure to heat stress. Its dependence on agricultural exports means that prolonged drought conditions could have implications for both domestic production and international food markets.
For African countries, the findings raise concerns about the vulnerability of agricultural livelihoods to changing weather conditions. Sub-Saharan Africa has recorded one of the sharpest increases in exposure to above-average temperatures, while many communities depend on rain-fed agriculture.
In Nigeria, where agriculture remains an important source of employment and rural livelihoods, prolonged heat and irregular rainfall can affect planting seasons, crop development and the availability of water for farming. Reduced agricultural output can also place additional pressure on food prices, particularly for households that spend a substantial proportion of their income on food.
The economic consequences of drought are not limited to agriculture. The OECD report warned that reduced water availability can disrupt energy production, particularly in countries that depend on hydropower and nuclear electricity generation.
Low river flows and unusually high water temperatures can constrain nuclear power generation because power stations require sufficient cooling water to operate safely and efficiently. Similarly, declining water levels in reservoirs can reduce hydropower output, forcing electricity producers to rely on alternative and sometimes more expensive sources of energy.
Brazil provides an example of how energy diversification can help manage such risks. Although hydropower remains a major component of its electricity system, the country has expanded wind and solar generation, reducing its dependence on rainfall and reservoir levels.
The report noted that the combined contribution of wind and solar power to Brazil’s electricity generation increased from 9.9 per cent in 2019 to 24 per cent in August 2025.
The growing importance of alternative energy sources demonstrates the need for countries to consider climate risks when planning electricity infrastructure and future investments.
Transportation and international trade are equally vulnerable.
Low river levels can restrict inland navigation, forcing vessels to reduce cargo loads or use alternative transportation routes. Such disruptions increase freight costs, delay deliveries and affect industries that depend on waterways for the movement of raw materials and finished products.
The Rhine River in Europe illustrates the scale of the problem. Prolonged drought has repeatedly reduced water levels along the important commercial corridor, affecting the movement of chemicals, energy products, agricultural commodities and industrial materials.
The OECD report also highlighted the Panama Canal, where drought-related shortages in reservoir water have forced restrictions on vessel movements, demonstrating how water scarcity in one location can disrupt international shipping and supply chains.
These developments underline the interconnected nature of climate risks. A drought affecting agricultural production or a major transport corridor can generate economic consequences far beyond the affected location through higher operating costs, delayed shipments and disruptions to industrial production.
Against this background, the OECD stressed the importance of strengthening climate adaptation to limit economic disruption and protect vulnerable populations.
With drought severity projected to increase by 2100, governments and businesses are increasingly being encouraged to move beyond emergency responses and develop long-term strategies for managing climate risks.
Companies are diversifying transportation options, strengthening supply chains and investing in infrastructure that can withstand prolonged periods of water scarcity.
In the case of the Rhine, for instance, chemical company BASF has invested in specialised shallow-draft vessels capable of operating under low-water conditions. Such investments help businesses maintain the movement of essential materials when conventional vessels face restrictions.
Governments are also developing heat action plans to reduce health risks associated with prolonged exposure to high temperatures. These include early-warning systems, workplace safety measures, public health awareness campaigns and arrangements to protect vulnerable groups during extreme heat.
Japan offers an example of a coordinated approach, with measures covering workplace heatstroke prevention, public awareness and support for households during periods of extreme temperatures.
The OECD report, however, makes clear that adaptation efforts must be accompanied by stronger climate policies and more consistent implementation.
Its wider assessment found that global climate mitigation policy efforts increased by only one per cent in 2025, despite substantial expansion over the previous decade. This raises concerns about the pace at which countries are translating climate commitments into practical action.
For developing economies, the challenge is particularly significant because investments in climate-resilient infrastructure, water management, agricultural technology and early-warning systems often compete with other pressing development priorities.
Nevertheless, the rising economic costs of extreme weather make the case for treating adaptation as an essential component of economic planning rather than an environmental concern alone.
The report noted that average annual economic losses from extreme weather events across OECD member and partner countries increased from $101 billion in 1994–1998 to $249 billion in 2021–2025.
The figures illustrate the growing financial burden associated with climate-related disasters and the need for governments to strengthen preparedness before extreme weather events cause further damage.
For African economies, the implications go beyond environmental protection. Safeguarding agricultural production, ensuring reliable energy supplies, protecting workers and maintaining transportation networks will be important to sustaining economic growth as temperatures continue to rise.
The growing exposure to extreme heat and drought also reinforces the importance of incorporating climate risks into public investment decisions, business planning and national development strategies.
Without stronger adaptation measures, the economic consequences could become increasingly difficult for governments, businesses and households to absorb.
