The Global Economy Braces for Yet Another Blow

Deadly flooding sweeping the American Southwest. Unrelenting downpours clobbering South America. A punishing drought gripping Southeast Asia. The world is still seeing the evolution of El Niño, the naturally occurring phenomenon that scrambles weather patterns worldwide and can wreak havoc on agricultural production. But these snapshots offer a window—and warning—for what could come as the full force of this powerful event crashes into a global economy that is already battered by the Iran war and months of trade turmoil. Deadly flooding sweeping the American Southwest. Unrelenting downpours clobbering South America. A punishing drought gripping Southeast Asia. The world is still seeing the evolution of El Niño, the naturally occurring phenomenon that scrambles weather patterns worldwide and can wreak havoc on agricultural production. But these snapshots offer a window—and warning—for what could come as the full force of this powerful event crashes into a global economy that is already battered by the Iran war and months of trade turmoil. “The effects of these El Niños are not benign,” said Cullen Hendrix, a senior fellow at the Peterson Institute for International Economics who has estimated that this event could cost the global economy more than $7 trillion over the next five years. “We’re talking about a phenomenon that has systemic impacts that can adversely affect populations all across the globe.” The world is no stranger to this phenomenon, which occurs about every two to seven years and can last for up to 18 months. But no two El Niños are identical. “Each one has its own little fingerprint,” said Brian Barker, a principal faculty specialist at the University of Maryland who works for NASA Harvest, the agency’s food security and agriculture program. “Until we actually see it develop and come to fruition, we won’t know exactly what it’s going to be.” And this year’s event is shaping into what could be the strongest El Niño ever recorded. The U.S. National Oceanic and Atmospheric Administration has forecast an 83 percent likelihood that the world sees a strong-to-very strong El Niño in early 2027, and the World Meteorological Organization (WMO) has projected that the strength of this event could exceed the scale of its global monitoring charts. Governments, banks, and humanitarian agencies are bracing for substantial disruptions to critical infrastructure, food production, and global inflation. Impacts on agricultural yields are highly uneven: Southern Africa, Central America, India, and Australia are set to feel the sharpest pain, while the United States and Central Asia could see benefits. At the global level, crop production impacts typically offset each other, and ample inventories are expected to help cushion the shock. Past El Niños have taken a profound toll. For example, the El Niño of 2015-16 throttled some 60 million people, triggering $5 billion in humanitarian appeals across nearly two dozen countries, according to the U.N. Food and Agriculture Organization. While estimates range, studies suggest that prior events cost at least tens of billions, or even trillions, of dollars in economic damage globally. This El Niño is expected to reach its full might in December, but it is already leaving a trail of damage around the world. Peru and Bolivia recently declared states of emergency, with drought parching nearly 80,000 families in the latter, according to Bolivian officials. Indian farmers are grappling with the country’s weakest rainfall in a decade, while sweeping wildfires have smothered Indonesia. The big problem is that many of these countries are still reeling from the economic and energy shock waves of the Iran war and have little cushion to absorb new pressures. Hendrix, the Peterson economist who estimated that the economic losses of this El Niño could balloon to more than $7 trillion, said that the costs will deal a particularly painful blow to lower- and middle-income countries. The one-year losses associated with this El Niño are likely to scale to about a trillion dollars, he said. “To put that in ballpark terms, that’s roughly the equivalent of wiping an economy the size of Mexico off the face of the earth,” Hendrix said. As meteorological warnings have grown more urgent, aid agencies have leapt into action, although their networks have been strained by funding cuts and aid reduction. Last month, the United Nations Office for the Coordination of Humanitarian Affairs (OCHA) and WMO launched an appeal for immediate assistance to assist regions already facing El Niño’s impacts. Of particular concern is Sudan, which has been wracked by a devastating civil war and is now seeing intensified famine concerns amid El Niño’s resurgence and drought threat; 19.5 million people across the country face acute hunger, according to the U.N. World Food Program, while more than 4 million women and children are acutely malnourished. The organization is grappling with a $300 million funding shortfall to continue operations. There is also a lag between the onset of drought and its effect on food security, meaning that some of the worst effects likely won’t be seen for months to come. With drought, the most severe impacts can be delayed by six to nine months, or even a year, according to Richard Choularton, the director of the World Food Program’s Climate and Resilience Service. “This El Nino is the behemoth. It is a wrecking ball,” OCHA chief Tom Fletcher said at a press briefing. “It would be an extraordinary failure to see this crisis coming, to hear the predictions from the experts, and yet still squander the opportunity to protect people in its path.”