How El Niño Could Impact US, Global Economy
El Niño will have “substantial and long-lasting” economic impact and could cost the global economy an estimated $11 trillion, a new report suggests.
The findings come after an analysis by the Federal Reserve Bank of San Francisco showed that the climate pattern could lead to a rise in prices in the U.S. but also a potential boost to employment figures.
What Is El Niño?
El Niño is a naturally recurring climate pattern associated with warmer waters in the Pacific that can influence temperatures and rainfall worldwide. The phenomenon can raise the risk of drought in some regions and increase the likelihood of storms or flooding in other parts of the world.
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Experts around the globe have been pointing to a historic event. Federal forecasters in the U.S. said last month they expect El Niño to continue to strengthen through 2026, and that the odds remained high for a historic event that would exceed the strength of previous events dating to 1950.
U.N. Agency Warns El Niño Could Cost Global Economy $11 Trillion
The new report from the International Fund for Agricultural Development (IFAD), a United Nations agency and international financial institution focused on rural economies, said its $11 trillion estimate for the current El Niño accounted for direct impact on agricultural economies and wider disruption to infrastructure, commodity markets, consumer demand and global trade.
The agency warned that the event is “especially concerning” as it could raise temperatures on an already-warming planet, follow the 2026 energy-price spike caused by events in the Strait of Hormuz, and fall most heavily on households already under climate stress.
IFAD said small-scale producers can be affected in several ways simultaneously, with drought reducing crop yields and increasing irrigation needs as hydropower supplies decline. It pointed to India, where it noted hydropower output fell 21 percent as the June monsoon ran 40 percent below normal. Floods and storms can also damage roads and bridges used to transport goods, the agency said, while lower water levels can disrupt international trade, as demonstrated by restrictions on Panama Canal traffic.
Pieternel Boogaard, who oversees IFAD’s climate investments and work, told Newsweek the projected $11 trillion in global income losses over about five years was based on earlier strong El Niño events, with estimates ranging from roughly $7 trillion to $14 trillion.
“For households, an El Niño on this scale shows up in food prices and in lost farm income,” Boogaard said. “Its effect on food prices doesn’t discriminate between high-income and low-income countries, and all families can end up paying more for food too. Past strong El Niños have pushed up global food prices, and families living in poverty feel that most because more of their money goes on food.”
Boogaard said the report’s model showed a small corn farm losing about 60 percent of its usual annual net income when severe drought coincided with higher fertilizer and energy costs. She added that failed harvests also reduced paid work in rural communities, with less diversified and poorly resourced farms likely to feel the income impact most acutely.
How Could El Niño Impact the U.S. Economy?
In the U.S., typical El Niño effects can include wetter conditions across the South and warmer, drier conditions in the North during winter. The Federal Reserve of San Francisco said this month that El Niño “can have complex and varied effects on the U.S. economy.”
The current event may have already lifted prices by about 0.3 percentage point between April and July, the institution said in an Economic Letter on November 2. While it expects that rise to fade by the end of the year, the episode could then contribute to much as 1 percentage point to price growth during 2027, with the increase historically coming mainly from food, energy, and core services.
The Federal Reserve of San Francisco said the later increase would not occur unless El Niño was followed by La Niña, a contrasting pattern that produces the opposite effects of El Niño, including drier conditions in the southern U.S. and wetter conditions in the North.
The research also found that previous El Niño events typically had little impact on employment during their first year but were followed by stronger employment and lower unemployment in the next. It attributed the boost in U.S. labor markets to likely factors such as warmer northern winters.
“We caution that there are several caveats for our results, including that available data include a limited number of very strong El Niño events, that the current economic environment is different from historical events, and that El Niño forecasts are themselves inherently uncertain,” the Federal Reserve of San Francisco said.
Contact Newsweek editors on this story: Rebecca Flood and Dave Siminoff.