Moody’s Analytics has released a new analysis estimating that by 2050, the global economic impact of physical risks related to climate change could reach $41.4 trillion, representing a 14.5% reduction in global gross domestic product (GDP). The report attributes about two-thirds of these losses to chronic factors such as sea level rise and productivity loss, with the remaining third resulting from more frequent and severe natural disasters.

For the United States, Moody’s projects economic losses amounting to 9.5% of GDP by 2050, or roughly $6 trillion. Annual damage costs from natural disasters in the US are expected to be 26% higher in 2050 compared to 2020. Within the corporate sector, Moody’s estimates a reduction in operating margins by two percentage points, equating to $1.5 trillion in damages for US companies. Additionally, commercial real estate loan portfolios could see an almost 18% increase in default probability and about a 20% rise—over $200 million—in expected losses.

“In this white paper, Moody’s offers perspective and a potential framework for better understanding the impacts of catastrophic events from physical risk in 2050,” the company stated. “Starting with the big picture, we outline the macroeconomic impacts of the damages in terms of potential global GDP reductions. We also offer an approach to evaluating the damages of physical risk on real assets, which underpins the insight you need for business decisions.”

The analysis highlights that long-term climate risks require new approaches for assessing material impacts on both global and local economies as well as balance sheet management practices. Recent catastrophes—such as wildfires in Los Angeles and heat waves across Europe—are cited as current examples demonstrating both direct and indirect financial effects.

According to MunichRe data referenced by Moody’s Analytics, natural catastrophes worldwide caused approximately $320 billion in economic losses during 2024, with around $140 billion covered by insurance. This marked the fifth consecutive year where insured catastrophe losses exceeded $100 billion globally.

“The best available science and assessment of current policy scenarios suggest even bigger and more frequent disasters as we look further into the future,” according to Moody’s Analytics. The company notes it has modeled evolving physical risks for over three decades using methodologies accepted by insurance regulators.

Moody’s estimates are based on scenarios without additional transition policies implemented between now and mid-century—a situation consistent with projections made by organizations like Network for Greening the Financial System (NGFS), which represents central banks worldwide.

The report breaks down economic loss estimates into direct effects—such as damaged production facilities—and indirect effects like reduced labor productivity due to extreme heat or increased health risks leading to higher costs.

Evidence from recent research suggests that major hurricanes making landfall can cause economic fallout exceeding typical recessions due to long-term population decline and higher insurance premiums.

To assess asset-level impacts, Moody’s uses metrics such as annualized damage rate (ADR), comparing projected conditions under different climate scenarios through mid-century. For instance, chronic perils like heat stress are measured primarily through business interruption analytics rather than direct asset destruction.

On credit markets specifically, Moody’s found that average probabilities of default among sampled US firms could rise by up to 74% due solely to physical risk factors anticipated for 2050. In their case study covering commercial real estate loans worth over $62 billion nationwide—including multifamily housing, office buildings, retail properties, industrial sites, and hotels—the firm estimated a portfolio-wide increase in default probability nearing 18%, with expected credit losses rising more than one-fifth relative to baseline assumptions absent climate risk adjustments.

Local variations can be significant; for example, CRE loans secured against New Orleans properties showed a more than 43% jump in default probability under aggregate physical risk scenarios compared with baseline results—with expected loss rates nearly doubling locally due mainly to exposure from hurricanes and flooding.

“Moody’s assessment of the global macroeconomic and US credit market impacts from physical risk in 2050 demonstrates a material threat that leaders must understand and incorporate into business-as-usual risk management strategies,” said Moody's Analytics representatives. “Hurricanes in Florida or wildfires in California can be viewed as indicators... Decision-makers can also evaluate the materiality of their exposure to physical risk today into the midterm and better understand how most material risks change over time.”

Moody's suggests institutions use these findings not only for managing existing vulnerabilities but also identifying opportunities related to innovation or resilience planning across sectors including insurance, banking, private credit markets, and public finance.