El Niño: Will This Weather Phenomenon Affect The Economy?
Key takeaways
- El Niño and La Niña heavily impact the world, causing droughts and other issues
- Australia saw a bill of $AU11.8 billion after flooding caused by La Niña
- Countless industries see the effect of weather phenomenons, which can impact stock prices
Climate change concern is impacting investments and where many are putting their money. Clean tech availability is rising, and the goal of net zero by 2050 will definitely change traditional stock choices.
As with any major destructive force, be that extreme weather, war or something of equal impact, companies are affected and so are their stock prices. Here’s the lowdown.
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What is El Niño?
We’re not meteorologists here, so we’re going for the ELI5 (explain like I’m 5) version.
El Niño describes the warming of sea surface temperatures every few years, while La Niña is it’s colder counterpart. They change the climate worldwide for up to a year.
Once sea temperatures in the tropical Eastern Pacific rise 0.5°C (32.9°F) above the long-term average, meteorologists declare El Niño. It mostly impacts the immediate area, causing warmer-than-average weather.
And why is this relevant? According to US National Oceanic and Atmospheric Administration (NOAA) scientists, El Niño is here.
How does El Niño impact our world?
While a tiny temperature increase in a relatively small area might not sound like much, it can have global knock-on effects.
El Niño can cause more cyclones and typhoons in the Pacific and impact weather patterns worldwide. We’re talking rainfall in scorched deserts and droughts in rainy areas of Australia and Southeast Asia.
We’ve seen the effects of El Niño previously as it caused water shortages, infrastructure issues, and serious issues with maize, rice, and wheat crops in some countries. It can affect everything from transportation to agriculture.
What’s the economic impact of El Niño?
Not to add doom to your gloom, but there’s also the colder side of El Niño — La Niña. Australia saw severe flooding, with annualized food inflation hitting 9% in September 2022. And according to leading reinsurer Munich Re, these floods cost $AU11.7 billion (US$7.8 billion).
Speaking of insurers, El Niño also impacts that industry. 2022 saw $120 billion in natural disaster-related insurance payouts. It’s not a good time to be an insurer with rising interest rates, relatively low premiums against economic growth, and ever-growing climate issues.
In 2015, the International Monetary Fund (IMF) calculated that the cost of oil could increase by 14% within a year of an El Niño event while non-fuel commodities rise by 5%.
These impact monetary policy, potentially causing even more inflation. Crop shortages mean certain futures soar, like coffee and rice. That’s good for investors but not so much for the average consumer, bringing higher prices at the grocery store.
So for investors, the weather really can impact how assets perform, meaning it’s worth keeping an eye on.
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