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Scorched Asia

by Ines Lam, Economist, Asia, and Fred Neumann, Chief Asia Economist, Co-Head Global Research Asia

Article

  • Article
  • Asia is suffering most from the global rise in heatwaves
  • Damage to the economy is widespread with lower crop yields, falling productivity, and more power outages
  • In the near term, better weather is on the way, which will help Asia’s rice producers

How heatwaves hurt Asia’s economy

The world is grappling with more frequent and more intense heatwaves and Asia is bearing the brunt. Of all the subregions in the world, South Asia will be the hardest hit due to the type of work people do and its geographic location. North Asian countries – Japan, China and Korea – are also vulnerable.

Alongside from the tragic loss of human lives, heat stress is rapidly becoming an economic issue. We see three main channels by which extreme heat impacts Asian economies.

The first is lower agricultural output. Some crops such as wheat, maize and soybean are especially sensitive to heat. Rice is typically more resilient but has its limits. Japan’s heatwave in 2023 caused major quality issues to rice grains. Meanwhile, intense temperatures in spring 2024 triggered serious damage to Vietnam’s coffee production, pushing coffee bean prices to new highs on the international market.

In higher temperatures crops need more water, putting new demands on groundwater resources that take years to replenish. An article published in the scientific journal Science Advances estimates that at current depletion trends, the average crop yield per hectare of farmland in India may decrease by as much as 20% nationwide.

Lower agricultural output can spark greater volatility in food prices. In economies where a high proportion of income is spent on food, it is important for governments to manage food inflation so as to contain its impact on broader price stability.

30+
Heatwaves experienced by India since 1953 (International disaster database)
2023
Hottest year (globally) on record, up 1.2°C on the baseline average (NASA)

Higher temperatures can lead to diminishing labour productivity. According to the International Labor Organization (ILO), at 33– 34°C, a worker operating at moderate work intensity loses 50% of his or her work capacity. At the extremes, heat stress can prove fatal.

ILO projections suggest that in 2030, 2.2% of total working hours worldwide could be lost to high temperatures – a productivity loss equivalent to 80m full-time jobs. More than half of these expected losses would be in South Asia. The agricultural sector would be particularly affected.

The third way in which extreme heat is likely to impact Asian economies is through increasing power outages. Power demands typically rise during heatwaves as people switch on air conditioners and refrigeration systems – often at the very same time as hydroelectric resources are often put under strain by lower water levels.

Vietnam faced a power crunch in summer 2023, for example. A record-breaking heatwave pushed up electricity demand, while power supplies were curtailed by a shortage of hydropower, which accounts for 43% of northern Vietnam’s power sources. Large industrial parks in the north were faced with unannounced or short-notice power outages.

Overall, then, as well as the human and humanitarian costs, we see heatwaves causing significant economic challenges for Asia.

One key conclusion? When multinational companies make decisions about the location of new investments, the host country’s exposure to heatwaves and its energy reliability are going to be a key consideration.

One piece of near-term good news? The 2023/24 El Niño episode is over – a welcome relief for Asia’s agricultural sector. Rice yields are expected to rise modestly in most of Asia’s large rice producers in 2024/25, helping ease prices.

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