“Water stress” (i.e. the situation in which the need for water exceeds its available quantity during a certain period or when its poor quality limits its use) risks destabilizing economies around the world, increasing the threat of transboundary migration flows, while contributing to intra-regional economic divergence. A number of factors are stressing the importance of water supplies around the world, including climate change and changing weather patterns, as well as population growth, rapid urbanization, industrialization and the use of agricultural techniques that drain groundwater. In 2020, the “Food and Agriculture Organization of the United Nations” (UN Food and Agriculture Organization – UNFAO) considered global water stress, defined as the “withdrawal of fresh water as percentage of fresh water resources’.
However, levels of associated stress and distress vary dramatically around the world, from high in South Asia and Central Asia to critical in North Africa. In a report published in October 2023, the “World Wide Fund for Nature” (WWF – World Wide Fund for Nature) also estimated that “by 2050, about 46% of global GDP could come from areas facing high water risk’ compared to the current 10%.
Altered water availability will have a myriad of global economic impacts, with the biggest impacts felt in the agriculture, supply, energy and tourism sectors. Global water supplies are expected to become increasingly fragile in the coming years as climate change leads to more intense droughts and more devastating floods in regions around the world – causing widespread damage to crops and infrastructure. Such dry spells and floods can seriously disrupt agricultural production, which, in extreme cases, can lead to food shortages and malnutrition. Low rainfall can also disrupt energy supplies limiting output at nuclear and hydroelectric plants that depend on water from nearby rivers to generate electricity, in turn causing wider, even systemic, economic disruptions. Indicatively, it is reported that in India, the lack of water for cooling thermal power plants between 2017 and 2021 resulted in a loss of 8.2 terawatt hours of energy, i.e. enough electricity to power 1.5 million multi-person Indian households for five years.
In addition, too little or too much rainfall can cause disruptions in the supply chain, preventing river crossings, which are essential to the economies of many countries. Extreme changes in rainfall can also negatively affect countries’ tourism sectors if water scarcity leads to a “depletion” of available drinking water or if there are severe floods, causing revenue losses and reduced economic performance. (Water scarcity or water scarcity refers to the insufficiency of fresh water resources to meet the human and environmental demands of a given area.)
This is a risk not only for third world countries, but also for two advanced European economies (such as Greece or Portugal) where tourism represents a relatively large share of GDP, as of course in small countries with low per capita income and large tourism sectors, where workers in the industry often have no alternative employment opportunities (such as the Maldives or the Seychelles).
In 2022, due to a drought, water levels in Germany’s Rhine River fell to dangerous levels for navigation, which severely affected German car manufacturers and forced them to find alternative routes to ship their cars. In 2021, drought conditions prompted the US island of Maui, Hawaii, to impose severe restrictions on water consumption, affecting residents.
Thailand’s Ko Phi Phi Islands are on the brink of a water shortage that has increased the risk of limited rationing measures and has negatively affected the local economy and tourism sector. In 2023, a combination of low rainfall and an increase in tourism also caused a water crisis on the Thai holiday island of Koh Samui, which suggests that future tourism growth will prove unsustainable in some places, particularly if drought conditions become more frequent.
Globally, the 25 countries with the greatest “water stress”, in descending order, are: Bahrain, Cyprus, Kuwait, Lebanon, Oman, Qatar, United Arab Emirates, Saudi Arabia, Israel, Egypt, Libya, Yemen, Botswana, Iran, Jordan , Chile, San Marino, Belgium, Greece (the only three European countries), Tunisia, Namibia, South Africa, Iraq, India and Syria. Demand for water has skyrocketed in Europe and the US, and is growing rapidly in Africa. By 2050, water demand is projected to increase between 20% and 25% worldwide.
Obviously, increasing “water stress” will have a disproportionate impact on poorer countries, particularly those heavily dependent on agriculture, because of their limited capacity to pursue mitigation policies, as well as their greater vulnerability to economic shocks. Water scarcity and flooding cause greater disruption, economically and socially, in countries where most of the population is engaged in agriculture and where most of the income is spent on basic goods and services (such as food or clean safe water) and often occur in countries low income.
Of course, poorer countries are also at greater risk in terms of access to clean water and safe sanitation because their infrastructure is usually of lower quality and more vulnerable to natural and weather disruptions. In poorer countries, river damage caused by floods or droughts can even lead to problems with the supply of basic goods (such as food) and reduce access to drinking water destroying basic infrastructure. Poorer countries also often lack backup power and transmission systems, making them more prone to water-related disruptions, which magnify the impact on their economies. In addition, poorer countries are at much greater risk of socio-political instability, given their greater vulnerability to economic shocks, including food price insecurity.
- The issue of water scarcity and flooding is difficult to separate from the wider consequences of climate change. Economic models can individually measure the impact of reduced or excess rainfall on food production and domestic food prices. However, water scarcity and overabundance are rarely fully manifested. To predict the impact of water scarcity, assumptions must be made about how other variables will behave, including how a country will be able to respond in terms of risk mitigation policies. If water insecurity disrupts agricultural production and increases domestic food prices, the economic impact will depend in part on the country’s ability to import food, as well as fluctuations in world food prices. Furthermore, water scarcity will affect different crops in different ways, making it increasingly difficult to estimate the exact impact of water scarcity on a country’s agricultural sector and food prices.
Among the world’s developing economies, those of Africa and the Middle East are poised to be hardest hit. Areas close to the equator (i.e. South America, the Middle East, sub-Saharan Africa, South Asia and Southeast Asia) are at much greater risk of economic ‘water insecurity’, as these are the areas facing an adverse combination of rapidly increasing population and insufficient investment in water risk mitigation, exacerbated by overall lower levels of economic development. But the effects will be more pronounced in the Middle East and Africa.
In the Middle East, there is simply not enough natural water to meet the growing needs of the region, mainly due to changing rainfall patterns and rising global temperatures. And this has been exacerbated by population growth and urbanization, which has further strained water supplies in the desert countries of the Middle East. Growing concerns about water scarcity in the Middle East have already sparked geopolitical tensions over the sharing and allocation of water rights, where rivers cross several countries. (Recently, the water level of the Euphrates River in the lakes dropped by up to five meters because Turkey adopted a “thirst policy” restricting the flow of water to no more than 200 cubic meters per second, contrary to the current international agreement , which foresees the release of 500 cubic meters of water per second, for both Syria and Iraq.)
Meanwhile, Africa also faces natural water insecurity due to confluence of environmental changes, rapid population growth and urbanization. However, compared to the Middle East, Africa faces greater economic water insecurity, meaning that (whether water supplies are scarce or not), its countries struggle to use and distribute water efficiently, due to poor management and delays in infrastructure investments.
The negative economic impact of water scarcity in countries with rapid population growth, particularly those in Africa and the Middle East, will also contribute to further increased migration of their populations, as stagnant or even falling living standards often force more people to leave their countries and leads to increased migration flows, especially to Europe.
- According to the World Bank, many countries in Africa, the Middle East and Asia, including China and India, will suffer GDP losses of more than 6% by 2050 if they do not adopt more effective water management policies.
Some regions with relatively higher income levels (such as Europe and North America, as well as South America) will be much less affected by physical and economic water insecurity in absolute terms, but changing water availability will affect some zones differently in these regions, contributing to diverging economic prospects.
In richer countries, higher per capita incomes limit the impact of food price inflation due to water scarcity. Richer countries can also outperform poorer countries in securing international food supplies, particularly if crop failures caused by drought or floods have already increased the prices of such supplies.
In addition, advanced countries have greater financial resources both for risk mitigation measures (including the development of back-up transmission and power supply networks) and for rebuilding after large-scale damage caused by severe floods. But even in areas where water scarcity will be more manageable, the impact will still be felt.
For example, the European Union has built some models of the wider impact of climate change on economic growth and found that Mediterranean countries will suffer production losses while Northern European countries will fare much better. Anecdotal evidence, such as the “record temperatures” experienced by Italy and Greece last year, suggests that tourism in Southern European countries will also suffer over time, even if initially tourism may simply shift away from warmer places. of these countries in colder regions.
- In North America, Mexico and the southwestern region of the United States will be most adversely affected by natural water insecurity. Lower rainfall and higher temperatures are already beginning to affect agriculture in both of these regions, and may also eventually affect even tourism flows to Mexico and US desert states (such as Arizona and Nevada).
- However, their overall economic burden is unlikely to cause wider national economic dislocation, given the high per capita income of the US and the moderate – relatively high per capita income of Mexico, and the very limited role played by the agricultural sector in both the countries. [ The agricultural sector in Mexico represents less than 4% of the country’s GDP. In the United States, the share is almost 6% of GDP. In terms of agricultural production, it is estimated that in the North American continent the water shortage will initially have the greatest impact on the southwestern region of the USA, which, however, represents only a limited share of the total agricultural production of the USA.]
- Compared to southern European economies, northern European economies will overall suffer less from climate changes in rainfall and water availability. In fact, agricultural sectors in some areas of Northern Europe are expected to benefit from changing weather conditions. Northern European countries could also see more visitors, as tourism in Europe is already shifting to more temperate and less water-scarce countries, rather than the North Sea, at the expense of Mediterranean countries.
- In addition, Europeans living in warmer, drier countries (such as Greece and Italy) may increasingly move north, leading to increased intra-European migration — particularly among EU countries in the passport-free “Schengen area,” where borders they are not an obstacle to free movement. However, some northern European countries, such as Germany, also rely on riverine supply networks, which are now more vulnerable to disruptions caused by extreme changes in rainfall, compared to maritime trade routes and maritime supply networks.
