A Historic El Niño Is Coming That Could Cost the World Trillions

Scientists and financial analysts are converging on the view that the current El Niño event will be the strongest since at least 1950 and possibly since the catastrophic 1877 to 1878 event associated with global famines. Over 90 percent of current forecasting models project this El Niño will exceed the 2016 record. The Australian Bureau of Meteorology projects the Relative Oceanic Niño Index will reach 3.3, a level never previously recorded in their data. NOAA's Climate Prediction Center has been in an El Niño advisory since June. Sell-side research from Citi, Morgan Stanley, and Bank of America has flagged the event as a material economic and investment risk, with Citi citing potential inflationary effects in Thailand and Bank of America discussing consequences for emerging market currencies.

El Niño occurs when easterly trade winds along the equatorial Pacific weaken, allowing the West Pacific warm pool to spread eastward and reconfigure global weather patterns. The breakdown triggers the Bjerknes feedback, a self-reinforcing loop that amplifies the event. Because the tropics function as the heat engine of global weather, this redistribution exposes more of the global atmosphere to ocean heat energy. Princeton geophysicist George Vlander described El Niño as the trunk of the variability tree in terms of climate variation and energy redistribution. The event comes in different spatial flavors, meaning its hazard consequences differ across episodes and across regions.

Impacts are already visible before the event reaches peak strength. A delayed South Asian monsoon onset is forcing farmers to irrigate using diesel-powered generators, affecting diesel prices and the politics of diesel subsidies in India, with downstream consequences for farmer welfare. El Niño typically peaks in December through February, and the current event is expected to wind down in February or March of 2027. Because El Niño imposes a warming anomaly on top of an existing global warming trend, 2026 has a non-trivial chance of being the warmest year on record, and 2027 is described as nearly locked in as a virtually guaranteed record temperature year.

A 2023 paper published in Science, led by Justin Mankin and Chris Callahan of Indiana University, used causal inference techniques to estimate the macroeconomic costs of El Niño by treating its sea surface temperature anomaly patterns as effectively exogenous from the global economy. Because El Niño's spatial patterns in the tropical Pacific are not shaped by global economic activity, it functions as a useful natural experiment. The 1997 to 1998 El Niño, estimated at the time to have caused roughly 36 billion dollars in losses, was recalculated in that paper to have caused approximately 5.7 trillion dollars in cumulative global economic losses over the five years ending in 2003, with losses continuing to accrue at eight and ten years.

The mechanism behind this persistent damage is the simultaneity of El Niño hazards across disparate regions. Heat waves, droughts, floods, landslides, and wildfires strike multiple geographies at once, disrupting supply chains in several places simultaneously rather than allowing sequential recovery. A perfect model framework test found that even when a permanent economic effect was built into a simulation, the available data record was too short to statistically recover that effect, meaning permanent damage cannot be ruled out. If the impacts are truly permanent, each El Niño event places the global economy on a durably lower growth trajectory and losses accumulate indefinitely.

The forthcoming event is described as out-of-sample because background global warming is compounding its intensity in ways that have no historical precedent. Conservative estimates of global economic losses reach approximately 10 trillion dollars over the next five years, with upper tail estimates reaching approximately 14 trillion dollars. The scale reflects not only the event's magnitude but the larger size of the global economy, meaning more assets are exposed than during any prior episode. Isolating El Niño costs from broader global warming costs is described as a necessary step in accurately accounting for the full economic toll of climate change to date, though what El Niño will look like in 2050 or 2100 under continued background warming is described as essentially unknowable.