Climate change threatens to dent Italy's long-term economic growth and  worsen debt risks, study says

By Valentina Consiglio

ROME, July 8 (Reuters) - Climate change could significantly weaken Italy's long-term economic growth and make its already heavy public debt burden harder to sustain, with output potentially lowered by up to 6% by 2050, according to a study released on Wednesday.

The findings come as Europe, including Italy, has been grappling in recent days with an intense heatwave that has pushed temperatures way above seasonal norms and has been linked to thousands of deaths across the continent, underscoring the growing economic and human costs associated with extreme weather.

The analysis by the Euro-Mediterranean Center on Climate Change (CMCC) argues that climate-related damage goes beyond the direct hit to economic activity, affecting government finances by reducing the tax base, increasing debt sustainability risks and pushing up borrowing costs through what researchers describe as a "climate spread".

"We find that climate risk is also a sovereign risk," said Massimo Tavoni, director of the European Institute on Economics and the Environment at CMCC and one of the study's authors.

Without additional mitigation and adaptation measures, Italy's gross domestic product in 2050 could be between 2.2% and 6.0% lower than in a scenario without climate damage, the study found. Even under a more favourable growth scenario, GDP would still be between 1.6% and 4.2% lower than otherwise would be the case.

The report warned that climate impacts were uneven across Europe, with southern and eastern nations  more exposed to economic losses.

Italy has routinely posted some of the lowest growth rates in the euro zone over the past two decades and carries the currency bloc's heaviest debt burden, with public debt amounting to around 138% of gross domestic product this year.

Economists have long warned that weak trend growth leaves the country especially vulnerable to shocks that undermine tax revenues and raise borrowing costs.

The researchers estimate that climate-related impacts could eventually double refinancing risks on Italian public debt, although they stress that the outcome will depend on future climate policies and adaptation efforts.

"Delaying action means increasing the economic cost of global warming," said Matteo Calcaterra, another author of the report.

"Acting promptly means protecting the country's growth trajectory and the long-term sustainability of its debt."

(Reporting by Valentina Consiglio, editing by Keith Weir)