This article is based on the France Inter discussion about El Niño featuring climatologist Christophe Cassou, supplemented by research from NOAA, the World Meteorological Organization, the European Central Bank, the IMF and the academic literature. [1]
Central idea. El Niño is not a single global shock with one identical effect everywhere. It is a common climate disturbance that generates geographically uneven supply, income, trade and financial shocks.
At first sight, El Niño belongs to climate science. In reality, it also belongs in an international macroeconomics textbook.
A weakening of winds over the tropical Pacific can move an enormous volume of warm water across the ocean. This changes rainfall, temperatures, marine ecosystems and the probability of extreme weather in different parts of the world. Harvests, fisheries, hydropower production and transport infrastructure may then be affected.
These sectoral disruptions do not remain confined to farms, oceans or power stations. They propagate through commodity prices, international trade, exchange rates, household purchasing power, government budgets and monetary policy.
1. What exactly is El Niño?
Under normal conditions, the equatorial Pacific is organized by a persistent system of easterly trade winds. These winds blow from the coast of South America toward Indonesia and Australia. They do not simply move air: by dragging on the ocean surface, they also push the warm surface layer of the Pacific westward.
This wind-driven movement creates an important imbalance across the ocean. The western Pacific becomes warmer and deeper because warm surface water accumulates near Indonesia, Papua New Guinea and northern Australia. The sea surface is slightly higher there, and the layer of warm water extends farther below the surface. By contrast, the eastern Pacific, near Peru and Ecuador, remains cooler because the warm surface layer is continually pushed away from the coast.
This is where the thermocline becomes important. The thermocline is the transition zone between warm surface water and colder deep water. In the eastern Pacific, the thermocline is normally relatively close to the surface. When the winds push warm surface water away from the South American coast, colder water from below can rise to replace it. This vertical movement is called upwelling. [2]
Upwelling is not only a physical oceanographic mechanism; it also has an economic meaning. The colder water rising from below is rich in nutrients. These nutrients sustain plankton, which supports anchovy, sardine and other fish populations. This is why the Pacific coast of South America has historically been so important for fisheries and fishmeal production.
The video offers a useful analogy. Imagine a fan blowing continuously across the surface of a large container of water. The fan represents the trade winds, and the container represents the tropical Pacific. As long as the fan blows in the same direction, water piles up on one side of the container and the water surface becomes tilted. This is what the trade winds do, on a vastly larger scale, across the tropical Pacific.
If the fan weakens, the force maintaining the tilted water surface also weakens. Some of the water that had been pushed to one side spreads back. In the Pacific, this means that warm water moves toward the central and eastern equatorial Pacific. The eastern Pacific warms, the thermocline deepens, upwelling weakens and tropical rainfall shifts. This is the physical core of El Niño.
El Niño is therefore not only a change in sea-surface temperature. It is a coupled ocean–atmosphere disturbance: the winds affect the ocean, the ocean surface affects tropical rainfall, and the shift in tropical rainfall modifies atmospheric circulation far beyond the Pacific basin.
Neutral Pacific conditions
El Niño conditions
Thermocline. The thermocline is the transition zone separating warmer surface water from colder deep water. When it becomes deeper near South America, cold and nutrient-rich water can no longer reach the surface as easily.
This matters for fisheries. Changes in water temperature, upwelling and ocean currents alter where fish can live and feed. Fish may migrate, move into deeper water, reproduce less successfully or disappear from traditional fishing grounds. [11]
El Niño is the warm phase of the El Niño–Southern Oscillation, usually abbreviated as ENSO. La Niña is its colder counterpart. ENSO is irregular rather than mechanical: events generally recur every two to seven years and vary considerably in duration, timing and geographical structure. [2] [3]
2. Three layers of uncertainty
A disciplined interpretation of an El Niño forecast separates three different questions.
First question: will an El Niño event occur?
This is the question climate models can usually answer with the greatest confidence several months in advance. Nevertheless, the probability changes as new oceanic and atmospheric observations become available.
Second question: how strong will it become?
Forecast ensembles contain many possible trajectories rather than a single deterministic path. Some simulations may indicate a weak event, while others indicate a strong or very strong event.
Third question: what will happen in a particular country?
This is the most difficult question. Even two events with similar average Pacific temperature anomalies can produce different regional outcomes. Their consequences depend on timing, duration, spatial structure and interaction with other climate patterns.
Situation at the time of writing: 18 June 2026. NOAA reported the presence of El Niño conditions and expected the event to strengthen toward the Northern Hemisphere winter of 2026–27. The World Meteorological Organization and ECMWF also emphasized elevated probabilities alongside considerable uncertainty about the event’s eventual strength and regional effects. [3] [4] [5]
The expression super El Niño is widely used in the media but is not a standardized operational category. Scientific and meteorological agencies generally distinguish between weak, moderate, strong and very strong events.
3. How can the Pacific influence weather around the world?
The tropical Pacific is a major source of heat and moisture for the atmosphere. When the location of its warm water and tropical rainfall changes, large-scale atmospheric circulation also changes.
These distant statistical connections are known as teleconnections. A teleconnection does not mean that El Niño mechanically determines the weather in every location. It means that El Niño changes the probability of particular seasonal conditions.
| Region | Typical El Niño tendency | Main economic exposures |
|---|---|---|
| Australia and Indonesia | Hotter and drier conditions in many areas | Agriculture, wildfires, hydropower and food exports |
| Parts of South and Southeast Asia | Weaker or displaced monsoon rainfall | Rice production, water supply, electricity and food inflation |
| Pacific coast of South America | Warmer coastal waters and heavier rain in some areas | Fisheries, floods, roads, ports and agriculture |
| Central America and the Caribbean | Greater probability of dry conditions | Crops, reservoirs, food imports and electricity |
| Southern United States | Wetter conditions during parts of the winter | Flood damage, construction, agriculture and insurance |
| Parts of southern South America | Greater probability of rainfall | Potential agricultural gains but also flood risk |
| Europe | Weak and inconsistent direct signal | Mostly indirect exposure through trade, commodities and demand |
These are historical tendencies, not promises. Every event is different. Its impacts depend on its strength, duration, seasonal timing and interaction with other climate modes. [3]
4. From ocean temperatures to macroeconomic variables
The complete climate–macroeconomy transmission mechanism can be represented as a sequence of connected disturbances.
The diagram explains why El Niño should not be analysed as a weather anecdote. It is a potential disturbance to production networks, relative prices and national balance sheets.
Potential output
Consider a simple aggregate production function:
In this expression, Y* is potential output, A represents productivity, K is the productive capital stock and L is effective labour input.
El Niño can affect all three components. Drought, water shortages and electricity interruptions can reduce productivity. Floods can destroy roads, irrigation systems, ports and factories. Heat, disease and displacement can reduce effective labour input.
In aggregate-demand and aggregate-supply terminology, the immediate result often resembles a negative supply shock: economic activity weakens while prices rise. This is the source of the climate-related stagflation dilemma.
5. Agriculture and food inflation
Suppose that abnormal rainfall reduces rice production in several major exporting economies.
Higher rice prices affect food processors, restaurants, retailers and public food programmes. Households must devote more income to necessities and may reduce their expenditure on other goods and services.
Headline inflation can be represented schematically as:
Here, πf,t is food-price inflation, πe,t is energy inflation and πc,t represents inflation in the remaining consumption basket. The coefficients ω represent the corresponding weights in the consumer price index.
An identical increase in world food prices therefore produces different national inflation rates. Its effect is generally larger in economies where food represents a large share of household expenditure.
ECB research suggests that El Niño has historically been associated with material increases in global non-energy commodity prices. One ECB exercise estimated that a transition from normal conditions to a strong event could produce a sizeable, delayed increase in global food commodity prices. Responses differed markedly across rice, corn, soybeans, wheat, coffee and cocoa. [6]
These estimates illustrate possible orders of magnitude. They are not a mechanical forecast for every El Niño episode.
The key word is heterogeneity. A drought may reduce one crop while additional rain improves another. Farmers, consumers and livestock producers can substitute between products. Inventories, fertilizer prices, energy costs and export restrictions also influence the final market outcome.
6. The exchange-rate amplification mechanism
Consider a food-importing small open economy. Its domestic food price can be approximated by:
In this expression, E is the domestic-currency price of foreign currency. An increase in E therefore represents a depreciation of the domestic currency. The terms C and τ represent transport costs and border costs.
The macroeconomic sequence may unfold in five stages:
- The international price rises. Food imports become more expensive.
- The trade balance deteriorates. More foreign currency is required to finance the same quantity of imports.
- The exchange rate comes under pressure. Depreciation raises the local-currency price of food, fuel, fertilizer and intermediate inputs.
- Real household income falls. Nominal wages usually adjust more slowly than food prices.
- Policy trade-offs intensify. The government may increase transfers or subsidies while the central bank considers tighter monetary policy.
The initial agricultural disturbance has now become an inflation, current-account, exchange-rate and fiscal shock.
7. Terms of trade: the same price can create winners and losers
A rise in world food prices does not have the same effect everywhere.
A net food importer generally experiences a deterioration in its terms of trade. It must export more goods and services to purchase the same quantity of food.
A net agricultural exporter may receive additional export revenue. However, this apparent gain can disappear if the country’s own harvest is simultaneously damaged.
The distributional effects also differ within each economy:
- Farmers with a marketable surplus may benefit from higher prices.
- Subsistence farmers suffering crop losses may become net food buyers.
- Urban households generally lose purchasing power.
- Food-processing firms face higher input costs.
- Governments may incur larger subsidy and social-protection expenditures.
A rise in agricultural prices is therefore not only an inflation issue. It redistributes income between sectors, regions and households.
This is a conceptual framework rather than an accounting identity. The relevant buffers include inventories, irrigation, diversified imports, crop insurance, foreign-exchange reserves, fiscal space, social protection and access to international finance.
8. Fisheries, electricity and infrastructure
Fisheries
When warm water spreads eastward and upwelling weakens, fewer nutrients reach the ocean surface. The marine food chain is disrupted, and fish populations may move away from established fishing grounds. [11]
These effects can reach animal-feed markets because fishmeal and some agricultural products are substitutes.
Hydropower and electricity
Drought can reduce reservoir levels and hydropower production. Electricity systems may then rely more heavily on thermal generation or imported power. This raises electricity prices, fuel imports and industrial production costs. It can also increase the probability of rationing or blackouts.
In a country where hydropower dominates the electricity mix, a rainfall disturbance can therefore become an economy-wide productivity shock.
Infrastructure and public capital
Intense rainfall and flooding can damage roads, bridges, ports, housing, sanitation systems and irrigation networks. The immediate effect is a loss of productive capital.
Reconstruction may subsequently raise measured investment and GDP, but this should not be confused with an economic gain. The resources used to replace destroyed infrastructure could otherwise have expanded the productive capital stock.
9. What does the empirical macroeconomic literature find?
The empirical literature does not produce one universal El Niño multiplier. Estimated effects depend on the countries studied, the period, the chosen ENSO index, the model specification and the forecast horizon.
An IMF study using an interconnected model of 21 economies and regions found substantial but highly heterogeneous effects. Several economies experienced short-lived reductions in activity following a typical El Niño shock, while some other economies obtained temporary benefits. The study also found inflationary pressure in many countries, with larger responses where food had a high weight in the consumer price index. [7]
Research published in Science reaches a less benign conclusion about persistence. It estimates that major historical El Niño events were followed by very large cumulative global income losses over several years, particularly in lower-income tropical economies. [8]
| Empirical choice | Why it matters |
|---|---|
| Annual versus quarterly data | Determines which short-run adjustments can be observed. |
| Level effect versus growth effect | A temporary GDP loss differs greatly from persistently slower growth. |
| National versus global model | International spillovers may be omitted or explicitly modelled. |
| Average ENSO index versus event type | Eastern-Pacific and Central-Pacific events may transmit differently. |
| Constant versus time-varying coefficients | Economic vulnerability and market structures change over time. |
| Immediate versus cumulative horizon | Persistent productivity losses may appear only over several years. |
The safest conclusion is not that the literature disagrees and therefore tells us nothing. The correct conclusion is that the economic effect is state-dependent, geographically heterogeneous and potentially persistent.
Not every commodity price moves in the same direction
It is tempting to summarize El Niño as an inflationary commodity shock. That interpretation is too simple. Food prices may rise while another commodity price falls.
Our research on ENSO and oil markets finds that El Niño shocks tend to reduce spot and futures WTI oil prices, whereas La Niña shocks have the opposite effect. The estimates also differ between Central-Pacific and Eastern-Pacific events. [10]
This differs from earlier research reporting a positive average oil-price response following El Niño. The comparison demonstrates that identification strategy, sample period, event definition, geographical structure and time variation can all change the estimated response.
10. The lesson of the 1876–78 global famine
The video begins with the catastrophic droughts and famines of the late 1870s. Climate research associates the 1876–78 global drought with an exceptional combination of oceanic conditions, including a very strong El Niño, an extreme Indian Ocean Dipole and unusual North Atlantic temperatures. [9]
Concurrent drought and crop failure affected large parts of Asia, Africa and Brazil, contributing to a famine whose death toll was measured in tens of millions.
El Niño did not single-handedly cause the entire humanitarian catastrophe. The climate disturbance struck societies that were already highly vulnerable. Poverty, food access, transport, public relief, political institutions and market organization determined whether crop failure became famine.
A disaster emerges when a physical hazard interacts with exposure and vulnerability.
Modern international trade can provide an important buffer. A country experiencing a harvest failure can import grain from producers that remain unaffected. This protection weakens when crop failures are synchronized across exporting countries, shipping is disrupted, foreign currency is scarce or governments impose export restrictions.
11. El Niño and climate change are not the same phenomenon
El Niño is a naturally occurring mode of climate variability. Anthropogenic climate change is a persistent alteration in the planet’s energy balance caused principally by greenhouse-gas accumulation.
They should not be conflated.
During El Niño, heat already stored in the tropical ocean is redistributed and transferred more strongly into the atmosphere. Greenhouse warming, by contrast, causes the Earth system to accumulate additional energy over time.
The scientific evidence does not support the simple proposition that climate change necessarily increases the frequency of every type of El Niño event. However, a warmer ocean and atmosphere can amplify some consequences by increasing baseline temperatures, evaporation and atmospheric moisture. Heavy rainfall can become more intense, while drought and heat can become more damaging. [3]
This distinction also helps prevent false attribution. A local heatwave occurring during the development of El Niño is not automatically caused by El Niño. Attribution requires evidence linking the event to the relevant regional climate mechanism.
12. The policy response
The monetary-policy dilemma
A negative climate supply shock raises prices while reducing output. This creates a difficult choice for central banks.
A higher interest rate cannot restore rainfall, rebuild a harvest or move fish back toward the coast. Excessive monetary tightening may deepen the economic contraction.
Ignoring the shock can also be risky when:
- Food-price increases spread to other prices.
- Wages and services prices adjust strongly.
- Inflation expectations become less firmly anchored.
- The currency depreciates.
- Repeated shocks make inflation more persistent.
Temporary first-round effect. When food prices rise once and inflation expectations remain anchored, the central bank may largely look through the immediate relative-price adjustment.
Persistent second-round effects. When the shock spreads to wages, services, exchange rates and expectations, tighter monetary policy may be required to prevent a temporary disturbance from becoming generalized inflation.
Fiscal policy
Governments face pressure to reduce the cost of food, electricity and transport. Yet not all interventions are equally effective.
Generalized price subsidies are expensive and often benefit richer households in absolute terms because they consume more. Broad price controls can also discourage supply and generate shortages.
More targeted instruments include:
- Temporary cash transfers to vulnerable households.
- School-meal and nutrition programmes.
- Support for affected small farmers.
- Emergency public works.
- Temporary and transparent reductions in selected import barriers.
- Contingent credit and insurance for viable firms.
- Rapid repair of essential infrastructure.
Fiscal capacity depends on initial public debt, borrowing costs and access to foreign currency. El Niño can therefore amplify existing sovereign vulnerabilities.
Trade policy and the fallacy of national insulation
When food prices rise, exporting governments sometimes restrict exports to protect domestic consumers. For an individual country, this may appear rational.
When many exporters act simultaneously, internationally traded supply contracts further. World prices rise, importing countries face shortages and other governments respond with additional restrictions.
Open and predictable trade channels therefore function as a form of international climate insurance. Import diversification also matters: a country buying the same crop from several climatic regions is less exposed than a country relying on one supplier.
Preparedness as an economic investment
El Niño can often be anticipated months in advance. Seasonal forecasts can influence crop selection, planting dates, reservoir management, electricity procurement, food-stock releases, insurance arrangements and humanitarian preparation.
Forecasts do not need to be perfect to have economic value. A probabilistic warning can justify low-regret measures whose benefits remain substantial even when the most severe scenario does not occur.
13. ENSO and oil prices: why the sign is not obvious
Oil differs from many agricultural commodities because ENSO can influence both the demand for energy and the supply of oil. These channels may work in opposite directions. The final price response therefore depends on which channel dominates, where the climate anomaly is located and how long the adjustment takes.
The demand channel
ENSO-related weather changes can alter the consumption of heating fuels, electricity and transport energy. They can also affect agricultural output, industrial production and freight activity. If an El Niño episode produces milder conditions in important consuming regions or weakens economic activity, oil demand may fall and place downward pressure on prices.
The supply channel
Climate disturbances can also restrict production and distribution. Storms, flooding, drought or other extreme conditions may interrupt extraction, refining, pipelines, ports and shipping. When these production and transport effects dominate the demand channel, the oil-price response can be positive.
Spot prices, futures prices and expectations
The spot price is the price of oil for immediate or near-term delivery. A futures price is agreed today for delivery at a later date. Futures prices therefore incorporate expectations about future demand, production, inventories and possible climate-related disruptions. Studying both prices helps distinguish current market pressure from the way market participants expect the shock to develop.
What does our paper find?
Our working paper studies monthly U.S. WTI spot and futures prices from March 1983 to October 2024. It uses Time-Varying Parameter Local Projections, allowing the estimated response to evolve over time and to differ across El Niño and La Niña phases, forecast horizons and the geographical structure of the ENSO event. [10]
| ENSO shock | Approximate Niño 3.4 anomaly | Estimated WTI response after 6–12 months |
|---|---|---|
| One-standard-deviation El Niño shock | Increase of about 0.6°C | Spot and futures prices fall by approximately 1.0–1.5% |
| One-standard-deviation La Niña shock | Decrease of about 0.5°C | Spot and futures prices rise by approximately 2.0–2.5% |
| Large two-standard-deviation event | Approximately twice the corresponding anomaly | El Niño: decline of 2–3%; La Niña: increase of 4–5% |
The effects are most pronounced within a twelve-month horizon. The results indicate a delayed but economically meaningful transmission through demand and production channels. On average, El Niño shocks reduce WTI spot and futures prices, whereas La Niña shocks—particularly extreme episodes—create larger and more persistent upward pressure. [10]
Why the location of the Pacific anomaly matters
ENSO events do not all have the same spatial structure. The paper distinguishes between Central-Pacific and Eastern-Pacific events. Central-Pacific events—especially La Niña episodes—produce stronger inflationary oil-price effects. By comparison, Eastern-Pacific events tend to generate weaker, muted or deflationary responses. [10]
Interpretation. El Niño should not automatically be described as an oil-price inflation shock. The sign and magnitude depend on the ENSO phase, the geographical pattern of Pacific warming or cooling, the balance between demand and supply channels and the time horizon.
Conclusion: forecasting is not fatalism
El Niño begins with a change in the interaction between winds and ocean water in the tropical Pacific. It can end as a shock to inflation, GDP, international trade, exchange rates, public debt and household welfare.
There is nevertheless no single El Niño multiplier. The economic effect depends on where rainfall changes, which sectors are exposed, whether the country imports or exports the affected commodities, how prices and exchange rates transmit the shock, and which buffers are available.
The most important lesson is not that every El Niño is necessarily disastrous. It is that climate variability tests the resilience of economic systems.
El Niño is global. Its consequences remain profoundly local—and their amplification is fundamentally economic.
References
- France Inter, La Terre au carré, discussion of El Niño with climatologist Christophe Cassou. Video supplied as the principal source for this article. View the source video on YouTube.
- National Oceanic and Atmospheric Administration, Pacific Marine Environmental Laboratory, “What Is El Niño?” NOAA explanatory resource.
- World Meteorological Organization, “Prepare for El Niño,” 2 June 2026. WMO publication.
- NOAA Climate Prediction Center, “ENSO Diagnostic Discussion,” 11 June 2026. NOAA ENSO advisory.
- European Centre for Medium-Range Weather Forecasts, “El Niño in 2026,” ECMWF Science Blog. ECMWF analysis.
- European Central Bank, “Risks to Global Food Prices from El Niño,” ECB Economic Bulletin, 2023. ECB article.
- Cashin, P., Mohaddes, K. and Raissi, M., “Fair Weather or Foul? The Macroeconomic Effects of El Niño,” IMF Working Paper No. 15/89, 2015. IMF working paper.
- Callahan, C. W. and Mankin, J. S., “Persistent Effect of El Niño on Global Economic Growth,” Science, 2023. Dartmouth research summary.
- Singh, D. et al., “Climate and the Global Famine of 1876–78,” Journal of Climate, vol. 31, no. 23, 2018. Journal article.
- Gallegati, M., Ginn, W., Saadaoui, J., Solomou, S. and Tian, K., “Not All Climate Shocks Are Alike: How ENSO Impacts Oil Prices,” 2025. See also the EconMacro presentation of the research. SSRN working paper; EconMacro article.
- National Oceanic and Atmospheric Administration, Pacific Marine Environmental Laboratory, “El Niño and Fish Distribution.” NOAA fisheries resource.