El Nino weather event may cost global economy trillions of dollars via agriculture and food

In practice, the El Nino weather phenomenon is rapidly intensifying, warming surface waters in the Pacific Ocean, and is projected to cause droughts, floods, and extreme temperatures, taking a heavy toll on the global economy.

Key points

• The 2023 El Nino alone is projected to have caused $3 trillion in losses for the global economy by 2029.
• The IMF report, which covered the 1979-2013 period and included 21 countries and regions, discovered that short-term inflationary pressures emerge in most countries regardless of geographical location.
• The estimated cost of El Nino events that could occur in the 21st century could reach as high as $84 trillion.
• The World Meteorological Organization (WMO) expects a particularly solid El Nino this year.
• El Nino can additionally raise global non-energy commodity costs by around 5%, with the growth lasting up to 16 months.

Meanwhile, the World Meteorological Organization (WMO) expects a particularly solid El Nino this year.

Meanwhile, the WMO's report notes El Nino conditions are anticipated to develop between August and October, with the sea surface temperature anomaly reaching around 2.9C, based on a multi-model average. The temperature rise could peak around November. US has entered 'new phase' of economic pressure on Iran: Vance.

For context, the US National Oceanic and Atmospheric Administration (NOAA) expects El Nino to reach particularly robust levels between October and December, with more than a 90% chance, and puts the likelihood of the phenomenon persisting until early spring next year at 97%.

Meanwhile, the impact of El Nino has far-reaching implications for the global economy through agricultural production, food and commodity rates, energy supplies, logistics and inflation. Measures reviewed to tackle monsoon rains, floods, urban flooding.

Changes in rainfall patterns can lead to drought or excessive rainfall, affecting the supply of rice, corn, soybeans, sugar, cocoa, and other agricultural products.

For context, a moderate El Nino can drive up real commodity cost inflation by around 3% within six to 12 months of its onset, according to the European Central Bank (ECB).

El Nino can additionally raise global non-energy commodity costs by around 5%, with the growth lasting up to 16 months. Speakers call for empowered local govts to address governance crisis.

Meanwhile, the rise in sea surface temperatures due to a solid El Nino could push global food costs higher for regarding two years, with the rise peaking at 9%, particularly affecting soybean, corn, and rice rates.

Meanwhile, the World Bank expects global food commodity rates to rise 2.5% in the baseline scenario this year, but a robust and prolonged El Nino, along with high energy and fertilizer costs, fuel demand and export restrictions, could push food rates much higher than estimated. CM Maryam meets IPP lawmakers against the backdrop of shifting political situation.

As weaker monsoon rains in India, Thailand, and Southeast Asia could dampen sugarcane production, while excessive rainfall in Brazil could affect yields, according to Morgan Stanley, sugar is the most vulnerable agricultural commodity to El Nino-driven cost increases.

Wetter conditions in Argentina and southern Brazil could additionally backing yields for certain products.

Morgan Stanley expects a sharp, across-the-board rise in grain rates to be less probable, and notes El Nino's impact will depend on the region of crop expansion and the timing of rainfall.

As heavy rainfall and flooding in Chile could affect mining, while drought in Zambia could reduce hydroelectric generation, reducing electric supplies to mines and further tightening copper supply, copper is one of the commodities at high risk from a solid El Nino.

Nevertheless, milder-than-normal winters in some regions could reduce natural gas and electricity demand.

El Nino's ultimate impact on energy rates will vary depending on regional conditions.

For context, the impact of the weather phenomenon varies significantly from country to country. While countries such as Australia, Chile, India, Indonesia, Japan, New Zealand, and South Africa experience weaker economic activity, others, including the US and European countries, see expansion through various channels, according to the International Monetary Fund (IMF).

In practice, the IMF report, which covered the 1979-2013 period and included 21 countries and regions, discovered that short-term inflationary pressures emerge in most countries regardless of geographical location.

Dartmouth College researchers discovered that the 1982-1983 El Nino caused $5.7 trillion in economic losses, based on a model that considered the difference between the economic expansion countries would have achieved otherwise.

Notably, the 2023 El Nino alone is projected to have caused $3 trillion in losses for the global economy by 2029.

For context, the estimated cost of El Nino events that could occur in the 21st century could reach as high as $84 trillion.

As was the case in 2023, when water levels in the Panama Canal dropped to historic lows, forcing a reduction in daily ship transits from 36 to 24, el Nino additionally impacts logistics and global trade. Reduced cargo volumes and ships rerouting to longer routes can drive up freight costs and delivery times.

While additionally affecting temperatures, el Nino is considered a supply and income shock that can directly and indirectly affect the global economy.

While logistical problems and energy production disruptions can compound the effects, rising costs can spill over into consumer inflation, interest rate policy, corporate profitability, and public finances.

Notably, a weather phenomenon initially emerging in a specific region can evolve into a much broader shock affecting global economic expansion for years to come.

Taken together, the developments around el Nino weather event may cost global economy trillions of dollars via point to a situation that is still moving, and the coming days should bring more clarity.