A car drives through flood waters during the monsoon season in Kolkata, India. Climate change has impacted local economies' activities. Credit: Pexels/Dibakar Roy

By Michał Podolski
BANGKOK, Thailand, Jun 10 2025 (IPS)

Year by year researchers improve and deepen our understanding of economic activity. The primary example, and probably the most commonly used, is the detailed data and analysis available on gross domestic product (GDP).

Yet, it is merely one of several measures of economic activity and development used by researchers, economists and policymakers. As no one would describe the weather solely by temperature when a storm is developing, focusing solely on GDP when analysing the economic impact of climate change and climate action would be far from adequate.

And this is where many of us, whether policymakers, researchers or citizens who care about the economic impacts of climate change, must wonder: what are the other macroeconomic indicators to use?

This is also what ESCAP’s Economic and Social Survey of Asia and the Pacific 2025 report sheds more light on.

There is plenty of reliable information on different economic sectors and spheres of economic activity. Productivity, employment, technological adoption or capital investment are just some most looked at. Besides economic performance, these indicators also can reveal how climate change affects economies at the grassroots level – where people work and businesses operate.

However, this information is often hidden and difficult to notice due to the complexity and vastness of climate-economy impact channels.

For instance, economy-wide productivity tends to rise until we reach certain temperature level. The “optimal level” is currently estimated at around 13°C on average during a year. Why? The impact of too low or high temperatures is not just that people work less efficiently in extreme cold or heat.

For example, in agriculture, higher temperatures impact plant growth, therefore agricultural productivity. As temperatures shift, farmers need to adopt new crops or farming techniques, but they are often lacking the skills or financial resources to adapt to new reality.

Rising temperatures also facilitate the spread of diseases, such as dengue, which is now appearing further towards North than before.

Once ill, people are unable to work. With higher temperatures, children may miss school or struggle to concentrate and learn. The effects of worse education may not be clearly visible in today’s productivity data but will manifest in decades to come.

Similarly, extreme weather events, driven by rising temperatures, not only cause significant infrastructure damage but also reduce productivity through seemingly trivial issues like traffic jams. Even a 15-minute delay becomes significant when it occurs regularly to millions of people.

Such disruptions increase transportation costs, necessitate larger inventories and reduce capital productivity, particularly in manufacturing. Hotter, more humid conditions also cause machinery to fail more frequently.

The hidden and less intuitive impact channels extend far beyond the already simplified yet still complex overview shared above. For example, lower productivity reduces wages and household incomes, which in turn limits households’ ability to save.

Smaller domestic savings hold back business expansion and job creation, as well as push up borrowing costs. At the end, securing a mortgage may become more challenging while house construction itself is more costly – all just because of some hotter or wetter conditions.

Although the above impact channels are well-documented, reasonable and logical, there are still massive research gaps on their exact scale, intensity, and local impact. For example, the Intergovernmental Panel on Climate Change in its climate report compiled by hundreds of researchers spanning climate science, biology, geography, economics and social sciences in 2022, concluded, “Projected estimates of global aggregate net economic damages generally increase non-linearly with global warming levels. The wide range of global estimates, and the lack of comparability between methodologies, does not allow for identification of a robust range of estimates. (…) Economic damages, including both those represented and those not represented in economic markets, are projected to be lower at 1.5°C than at 3°C or higher global warming levels.”

To put it simply: we know that climate change negatively impacts economies, and we know that the impact worsens with greater warming. However, we cannot yet determine whether the economic impact of climate change will be mild, severe or catastrophic – this requires further research, in particular on localized impact.

Those who view the climate change impact channels described above as remote from everyday concerns and assume that their effects are negligible, may wonder about their long-term aggregate impact: losing even a small amount of money every day, by everyone, for decades or even centuries to come adds up to tremendous amounts.

Therefore, even if with climate change, we all lose, informed policy action can lower these loses, and macroeconomic indicators are one of the tools that help and still have lots of potential to improve climate action.

Given the above considerations, as ESCAP’s Economic and Social Survey of Asia and the Pacific 2025 report argues, we need not only a more comprehensive understanding of climate change and economy nexus but broader and more common use of the current macroeconomic findings.

The report contributes to this conversation by examining how the economic impacts of climate change and climate action are reflected in macroeconomic indicators, outlining what can and should be done to better navigate the climate storm.

IPS UN Bureau

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Excerpt:

Senior citizens are exercising at a park in Bangkok. Out of 67 million Thais, 12 million are elderly. Credit: UNFPA Asia and the Pacific

By Michał Podolski
BANGKOK, Thailand, Jul 25 2024 (IPS)

Several Asia-Pacific countries are ageing fast. This transition is neither unique nor limited to the region — it is a global megatrend. However, this time it is different. Why? Because ageing proceeds quite fast.

While France and Sweden took 115 and 85 years, respectively, to progress from being an ageing society (with 7-14 per cent of the population aged 60 or older) to an aged society (14-21 per cent aged 60 or older), the same transition in China, Singapore, Thailand and Viet Nam is expected to take only 19-25 years.

Compared to other global megatrends that are shaping economies, such as digitalization or climate change, demographic shifts remain relatively foreseeable and slower by nature. This provides some soothing yet misleading comfort to policymakers. The impact these shifts have on economies is far from being simple, and analysts struggle to fully understand and/or quantify them.

The economy is the people. Therefore, demographic shifts stand out as one of the most influential factors shaping any aspect of an economy. Changing demographics means altering the essence and purpose of all economic activities.

As the purpose changes, so do the needs. Changes in productivity, the share of population in job markets, fiscal policy conduct and effectiveness, and how monetary policy affects economies – all these processes introduce high uncertainty into long-term economic and fiscal policy planning.

Why do the analysts struggle with quantifying the economic impact of ageing? The net change is a sum of multiple factors, often working in opposing directions. As people age, their productivity tends to fall. On the other hand, this trend is offset by technological progress, though to a largely unknown extent, making the net impact difficult to predict.

Ageing societies also exhibit a shift in consumption from durables (e.g. cars) to essential services (e.g. health care), thus affecting a country’s composition of demand for goods and services and tax revenues. Ageing also changes labour force participation. In simple terms, the share of working people in aged societies is lower than in young ones.

Furthermore, the more developed a society is, the greater the temptation to withdraw from the workforce as older people have the possibility to withdraw faster from labour force and enjoy the comfort of retirement. In contrast, in developing societies older people must work up until very old age to avoid poverty. No stone remains unturned.

Why is that all troublesome from the perspective of fiscal policymaking?

First, policymakers would like to know how much of goods and services are and will be produced so that they can plan how to redistribute them through taxes and fiscal expenditures. In plain words, policymakers need to know how to cut and redistribute the “economic pie” (GDP) – and it is not easy to predict its size in the future.

Second, some fiscal expenditures increase and some fall as societies age. Fiscal expenditures on pensions rise along with health care and other forms of social protection. In contrast, education expenditures fall given less demand for children education.

Third, the exact scale and time of these shifts is not easy to determine.

However, Governments do not have to remain passive observers of the demographic shifts, as they have multiple tools to soften the negative impact and boost positive processes. For example, premature retirement results in excessive burden on the fiscal system. Reskilling and upskilling of older people do retain them in work force, increase economic output and reduce poverty among older persons.

At the same time, governments may implement society-wide policies that support healthy and active ageing. With the help of modern technologies and experience from other aged countries, such as Japan, much can be done to keep people active into old age.

All such actions not only improve quality of life and economic performance among older people, but also, directly alleviate the fiscal burden of pension systems as retirement is postponed.

Finally, all the challenges highlighted above and policies needed to address them are closely linked. Therefore, policymakers should seek to address few problems at a time looking for synergies.

For example, greater investments in health care, education, social protection, and environment protection do not only improve the quality of life but also allow people to stay employed for a longer time period.

A better environment improves people’s health condition, which supports economic activity and decreases public spending needs for social protection and health care. In turn, saved social protection and health care expenditures can be used to support other development priorities.

This holistic approach must become the norm of government policy planning. Socioeconomic policies must embrace the idea of synergies between their goals, so that spending on one policy target also supports other goals.

For more insights into how demographic shifts are reshaping Asia-Pacific economies, fiscal policy, and the overall development agenda please delve into the Economic and Social Survey of Asia and the Pacific 2024, prepared by the United Nations Economic and Social Commission for Asia and the Pacific.

Michał Podolski is Associate Economic Affairs Officer

IPS UN Bureau

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