El Niño Poses New Risk to Global Economy

El Niño Threatens Global Economy

The expected return of the El Niño weather pattern, supercharged by climate change, is shaping up to be the next test for a global economy already strained by the fallout from the Iran war. El Niño occurs every few years when trade winds of the tropical Pacific weaken and the ocean warms up. It typically lasts up to a year, peaking around year-end, and tends to bring dryness and heat to much of Asia and wet weather to various places, including the Gulf Coast.

Impacts of Past El Niño Events

The diverse outcomes of the last El Niño, from 2022 to 2023, included a rice export ban in India, a dengue epidemic, low water levels in the Panama Canal, devastating floods in Brazil and more expensive chocolate. Forecasters in the U.S. and elsewhere say El Niño is highly likely to form this year. Very hot ocean temperatures mean it has the potential to be a severe one, but it's too early to say.

Effects on Energy and Agriculture

Among those paying close attention to the El Niño forecasts are farmers across Asia already dealing with high diesel and fertilizer prices. In energy, the uncertainty is compounding the big unknown of when the Strait of Hormuz reopens, said BNP Paribas commodities strategist Jason Ying. He's watching for extra demand for liquefied natural gas in Asia to power air conditioners as temperatures rise. That could leave Europe short in the coming months. India is already enduring a brutal heat wave, and the forecast points to below-average rainfall in the coming monsoon. El Niño years are typically hotter, and energy consumption rises as people crank the AC. Drought also saps hydropower output, driving natural-gas and coal burning, something that happened in China during the last El Niño.

Impact on Commodity Prices

That episode boosted cocoa prices after fierce dry winds in key producers Ghana and Ivory Coast wrecked the crop, pushing up chocolate prices. Analysts say other agricultural commodities, from sugar to natural rubber, could get more expensive, but some crop-producing regions could benefit.

The Future of El Niño

It can be hard to disentangle El Niño's influence from extreme weather, which itself seems increasingly ordinary. The onset of El Niño may be feeding India's current heat wave, but Europe's is unrelated, said Andrew Watkins, a climate scientist at Monash University in Australia. Its impacts are now amplified because each episode occurs on a hotter planet. 'It's a risk multiplier for the already elevated chances we now have for extreme events due to the burning of fossil fuels,' Watkins said.