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The economics of South East Asia’s rising temperatures

The economics of South East Asia’s rising temperatures

If you think it’s hot out there today, spare a thought for the thousands of workers who struggle through their workday without the sanctuary of air conditioning. And with rising global temperatures, not only will conditions get worse, but the region’s booming economy could be dented too.

As many as 500 million people in South East Asia are regularly exposed to a combination of temperature and humidity that can produce severe heat-related health issues. Workers in agriculture, construction and shipping are particularly at risk, but garment workers may also find themselves at risk in sweltering factories with poor or no climate-control.

With heat stress impeding the ability of workers to do their jobs effectively, and costing the global economy an estimated USD300 billion every year, the threat of even warmer conditions in the future could have serious implications for the South East Asia’s economies.

Feeling the heat

Heatwaves have claimed tens of thousands of lives in recent years. During the record-breaking heatwave in India and Pakistan in 2015, almost 5,000 people, mainly construction workers and farmers, died as temperatures reached a blistering 50°C. Spikes in electricity demand for air conditioning led to power failures that disrupted businesses and critical services, while construction work was suspended, taxi drivers stopped driving and farmers watched as their crops wilted.

Exposure to a combination of high temperature and humidity can result in heat stress in humans and animals, with symptoms ranging from confusion and dizziness to fatigue and nausea, and in extreme cases death. People most at risk include the elderly, young children and the unwell. But it is workers in labour intensive industries who bear the brunt and the impacts are felt way beyond the personal level.

Excessive heat and humidity causes workers to slow down. They are prone to making more mistakes and the risk of injuries increases. Ultimately, this can and does reduce the work capacity and labour productivity of countries in hotter regions, such as South East Asia.

Research shows that a combination of temperatures higher 25°C and humidity in excess of 55% can produce heat stress conditions – this type of weather prevails about 90% of the time in Singapore. But the risks to labour capacity in the island state, dubbed the “Air-Conditioned Nation,” are mitigated by widespread climate-control and a workforce that predominantly resides in office settings.

Will rising temperatures cool the economy?

Although climate change is increasingly viewed through an economic lens, the potential impact of a warmer climate on labour capital has been largely overlooked. With average temperatures in South East Asia set to rise by up to 2°C by mid-century, the impact of heat stress on future productivity levels could be significant.

At Verisk Maplecroft, we’ve used future climate projections to calculate the drop in national labour capacity based on the increasing occurrence of heat stress conditions.

According to our data, South East Asia is the region set to experience the greatest loss in labour capacity due to heat stress, with a projected 16% decrease by 2045. Singapore faces the greatest potential decline with a projected 25% decrease, followed by Malaysia (24%), Indonesia (21%) and the Philippines (16%).

However, Singapore’s economy is somewhat insulated from these impacts. With the cushion of a wealthy, developed economy and predominantly white collar workforce, it’s estimated that annual heat-related losses in 2030 could be limited to USD0.2 billion (less than 0.02% of GDP).

Not an insignificant amount, but other markets in the region are set to be hit harder. With around a third of the population employed in agriculture in the Philippines, Thailand and Indonesia, reduced worker productivity is projected to take a serious bite of the economy: USD85 billion (10.7% of GDP) in the Philippines, USD150 billion (7.2% GDP) in Thailand and USD250 billion (4.3% of GDP) in Indonesia.

While air-conditioning could be Singapore’s saviour, our data suggests the annual number of cooling degree days (which reflects the amount of energy required each year to maintain a comfortable indoor temperature) is set to increase by 17% over the next three decades. As one of the world’s biggest per capita energy consumers and a country largely reliant on energy imports, this figure represents a separate threat to the nation’s continued economic growth.

Beating the heat

More prevalent heat stress conditions will lead to a drop in productivity, with the associated financial losses felt by the worker, at the corporate level and by the wider economy. The International Labour Organization (ILO) recommends a range of measures to combat heat stress in workers, including access to drinking water, frequent rests and seasonal adjustment of output targets.

But ultimately, as global temperatures increase, there will be no way to win back the lost labour capacity. By 2030, it is estimated that reduced productivity could cost the global economy more than USD2 trillion.

With much of this loss expected to occur in South East Asia, there’s an urgent need for new, novel techniques to counter heat stress in the future. Sowing rice at 2am under flood lights? High-rises going up under giant sun-shades and misting machines? Possibly. But in the meantime, perhaps pause for thought the next time you complain the air conditioning is on too high and the office is too cold.

Projected labour capacity reduction in South East Asia by 2045 due to rising heat stress

Source: Verisk Maplecroft's Heat Stress Indices 2017-Q4

By Dr Richard Hewston, Principal Analyst, Environment & Climate Change

This article first appeared on Channel News Asia on 24th October 2017

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