On the Nature of Things: Designing Macroeconomic Scenarios of Nature-related risks for France

Chronic and acute water-related scenario – Impact on France’s GDP

Non-Technical Summary

Nature provides the global economy with indispensable ecosystem services – such as water provision, soil formation, and pollination – that form the foundation of human well-being and economic activity. However, scientific evidence indicates that this natural capital is eroding at an alarming rate: nearly half of the world’s natural habitats have disappeared since the 1970s, and vertebrate populations have declined by more than 70%. While climate-related risks are increasingly monitored, nature-related risks are more spatially diverse and complex, making them difficult to quantify in traditional macroeconomic terms. This study addresses this gap by examining how nature degradation can trigger tangible economic shocks, using a forward-looking analysis focused on the French economy.

First, we conduct a prioritization exercise to identify the most economically material nature-related risks. Based on a survey of environmental scientists, economists, and financial experts, we constructed probability and materiality scores to filter a wide range of ecological threats. By analysing expert assessments of how these risks interact, we identified six primary risk clusters, focusing our modelling on those with the highest impact: water cycle disruptions and agricultural productivity. Using the NiGEM multi-country macroeconomic model, we simulate, first, a water-related scenario that combines chronic scarcity with acute droughts. Our results show that such disruptions lead to a stagflationary episode in France, characterized by a persistent decline in economic activity alongside rising prices, as water constraints act as a long-term drag on industrial and energy production.

In a second exercise, we model the impact of agricultural shocks, specifically focusing on a multiple breadbasket failure. This scenario explores a situation where domestic yield losses in France occur simultaneously with harvest failures in other major global producers. Because the French economy is deeply integrated into global trade networks, these shocks propagate through international supply chains, leading to even deeper output losses than the water scenario. Our simulations indicate that such events cause sharp surges in food prices and significant inflationary pressure, illustrating that nature degradation in one region can have immediate and severe financial consequences for households and businesses across borders.

Together, these two illustrative exercises demonstrate that nature degradation is not only an environmental issue, but also a material threat to macroeconomic and price stability. If such shocks become more frequent or persistent, they could pose significant challenges for monetary policy, particularly regarding the risk of de-anchoring inflation expectations. Our study also highlights that standard macroeconomic models often struggle to capture the complex, non-linear feedback loops and sectoral interdependencies inherent in nature-economy interactions. Consequently, better data and improved modeling are required to systematically integrate nature into macro-financial risk assessments. Central banks have a critical role to play in enhancing the representation of these risks and ensuring they are integrated into future policymaking and financial stability frameworks.

Keywords: Nature-related risks, Ecosystem services, Macro-economic modeling, Scenario analysis

Codes JEL : Q54, E32, C68.