El Niño Warning

I’ve been hearing a lot about El Niño of late, as businesses, especially in the resources sector, are concerned about the impact of the climate phenomenon. And for good reason: although last year’s El Niño-warnings turned out to be a false alarm, previous events have destroyed infrastructure and crops, disrupted trade and water supply, or undermined mining and hydro-electricity production.

El Niño remains difficult to predict, yet as authorities in Peru are taking fresh measures to respond to a strong El Niño, we are getting a better idea of what to expect this year. It is no longer a matter of “if”, but rather of how bad. The World Meteorological Organization in September talked of a mature El Niño in the Pacific Ocean, potentially among the four strongest ones since 1950. Although the worst weather should occur towards the end of this year, Australia, India and Indonesia are already experiencing droughts. Meteorologists believe there is a 95% chance that El Niño will last throughout the first quarter of 2016.

There will be wide-ranging impacts in vulnerable economies, but they are likely to include smaller harvests. Although the EIU forecast a modest rise in global food prices in 2016, after four years of decline, I do not expect a major turnaround. Low energy costs, ample stocks and moderating demand growth in emerging markets should keep a lid on prices.

How do you see El Niño affecting your business sector and your country’s economy? Let me know via Twitter @Baptist_Simon or via email on simonjbaptist@eiu.com.

Best regards,

Simon Baptist
Chief Economist