New short-term scenarios from the NGFS (Network for Greening the Financial System) reveal that extreme weather events could threaten up to five percent of euro area economic output over the next five years. These innovative scenarios address a critical gap by enabling central banks, financial institutions and supervisors to systematically assess the short-term impacts of climate risks.

In a blog post, Sabine Mauderer and the ECB’s Livio Stracca explore how these scenarios help quantify both physical and transition risks, as well as the economic consequences of different climate policy pathways. From coordinated transitions to net zero to abrupt shocks, the scenarios provide valuable insights into potential developments and their effects on inflation, economic growth and financial stability.