Climate risks to global supply chains

Extreme weather is disrupting supply chains more often, making risk awareness, mitigation and global policy coordination increasingly vital

Publishing date: 19 September 2025
Authors: Madalena Barata da Rocha Heather Grabbe Niclas Poitiers

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Extreme weather events are increasing in both intensity and frequency as climate change progresses. Understanding their impacts on the world economy thus takes on increased importance.

While most extreme weather events are localised, their economic impacts reverberate through global supply chains (GSCs). The importance of this is widely recognised, but the potential scale of economic risks to GSCs from such ‘fast onset’ events is still poorly understood. In this paper we look at how past extreme weather events affected supply chains, and how the public and private sectors should prepare for and try to mitigate future shocks.

We examine three distinct forms of disruption: lower manufacturing production due to natural disasters; reduced agricultural yields caused by floods and drought conditions; and damage to infrastructure and disruption of trade routes by climate conditions. In recent history, such events have had measurable effects, though limited by the diversified nature of global supply chains. Extreme events, such as the 2011 Thai floods or the 2022 drought affecting the Panama Canal, had measurable macroeconomic effects but remained short lived. As such events become more frequent and intense, the impact will become significantly larger and mitigation measures more important.

To prepare for the future, businesses need to invest not only in a better understanding of the risks to their supply chains, but also in mitigation measures. For governments, it will become increasingly important to set the right incentives for companies to mitigate their risks. At the international level, as the example of the 2007-2008 global rice crisis showed, uncoordinated policy responses can strongly exacerbate the effect of otherwise manageable climate-related production shortfalls. This highlights the need for globally coordinated policies.

The authors thank Ben McWilliams and Marie-Sophie Lappe for their valuable comments.

This Working Paper has been produced as part of the RETHINK-GSC project, which has received funding from the European Union’s Horizon Europe research and innovation programme under grant agreement number 101061123. Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union or the European Research Executive Agency (REA), the granting authority. Neither the European Union nor the granting authority can be held responsible for them.

The project “Rethinking Global Supply Chains: measurement, impact and policy” (RETHINK-GSC) has received funding from the European Union’s Horizon Europe research and innovation programme under grant agreement number 101061123.

About the authors

Madalena Barata da Rocha

Madalena joined Bruegel as a Research Assistant in March 2025. She holds a bachelor’s and a master’s in Economics from Nova School of Business and Economics. In her MSc dissertation, she focused on estimating and quantifying fiscal multipliers in Portugal, with the objective of contributing to a better understanding of fiscal policy effects. Her research applied VAR models and Local Projections methods, comparing their performance in assessing fiscal policy impacts.

Prior to joining Bruegel, Madalena interned at the Central Bank of Portugal, where she contributed to the production of statistics and indicators on the Portuguese financial sector within the Monetary and Financial Statistics Unit. She later gained experience in consulting, working on financial sector regulation topics. Additionally, she worked as a Research Assistant on topics related to public finances management.

Madalena is fluent in Portuguese and English, speaks conversational Spanish and is currently learning French.
Heather Grabbe

Heather Grabbe is a Senior Fellow at Bruegel. She specialises in the political economy of the sustainability transition and its impact on Europe's international relations and external policies.

Her current research is on the nexus between climate impacts, geopolitics and economic security; the role of resource productivity and circularity in strategic autonomy; biodiversity finance and the role of nature credits; and the evolution of green global value chains with carbon pricing.

She speaks English, French, Italian and German.

Heather is also a Visiting Professor at University College London. She was previously Director of the Open Society European Policy Institute, Deputy Director of the Centre for European Reform and senior advisor to then European Commissioner Olli Rehn. She has conducted academic research at the European University Institute, Chatham House and the University of Oxford. She holds a PhD from the University of Birmingham.
Niclas Poitiers

Niclas Poitiers, a German citizen, joined Bruegel as a Research Fellow in September 2019.

Niclas' research interests include international trade, international macroeconomics and the digital economy. He is working on topics on e-commerce in trade as well as European trade policy in global trade wars. Furthermore he is interested in topics on income inequality and welfare state policies.

He holds a Ph.D. in Economics from Universitat de Barcelona, a M.Sc. in economics from the Universität Bonn, and a B.Sc. from Universität Mannheim. During his Ph.D. he was a visiting scholar at Northwestern University.

Niclas is fluent in English, Spanish, and German.