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Water scarcity may knock 6% off GDP: World Bank

Countries that mismanage their water supplies as climate change effects take hold could see economic growth rates decline by as much as 6 percent by 2050, a new World Bank report claims.

Population growth, urban expansion and competing demand from agricultural and energy projects are expected to strain freshwater supplies already under stress from erratic rainfall linked to climate change, the report released Tuesday explained.

View of the bed of Jacarei river dam, in Piracaia, during a drought affecting Sao Paulo state, Brazil on November 19, 2014.
Nelson Almeida | AFP | Getty Images
View of the bed of Jacarei river dam, in Piracaia, during a drought affecting Sao Paulo state, Brazil on November 19, 2014.

"Nearly a quarter of humanity already resides in water-scarce countries," the report states.

"If current water management policies persist, and climate models prove correct, water scarcity will proliferate to regions where it currently does not exist, and greatly worsen in regions where it does," it adds.

Mismanaged water supplies are likely to impact local health and agriculture, sparking drought-related food price spikes that will help rekindle "latent conflicts" and drive migration. In regions such as the Middle East and the Sahel in Africa where water is already in short supply, those effects could cause gross domestic product (GDP) growth rates to decline by as much as 6 percent by the year 2050, the World Bank says.

Global growth as a whole would take far less of a hit, losing about 0.37 to 0.49 percent as a result. However, the report says some economic impacts like changes in trade patterns will be less visible.

Research measuring the broader impacts of climate change beyond water supplies has placed the cost even higher. A report from Bank of America Merrill Lynch published in 2015 estimated that the cost of climate change could rise to 1.5 percent of GDP per year by 2020, "with emerging markets and the poor to be hit hardest."

Last August, a Citigroup report said global inaction on climate change would wipe $44 trillion off global GDP by 2060.


However, "there is a silver lining," World Bank Lead Economist Richard Damania said in a press release. "When governments respond to water shortages by boosting efficiency and allocating even 25 percent of water to more highly-valued uses, losses decline dramatically and for some regions may even vanish."

Investment in wastewater recycling and desalination plants, for example, could help boost urban supplies, while urban water meters could provide a financial incentive to cut back use and water waste, the report explains.

These solutions could be costly but the "costs of inaction are far higher," the report highlighted.

"Improved water stewardship pays high economic dividends," Damania added.