A new update from the World Meteorological Organization forecasts that there is a 90% probability of the El Niño event continuing during the second half of 2023.
This is no surprise as the US National Weather Service declared that El Niño had arrived last month.
The question now is the intensity and the effects. The WMO says it will be at least of a moderate strength others warn it could be particular strong because of high ocean temperatures.
The effects in markets are generally:
- Bullish for agricultural commodities due to drought risk
- Sugar spiked during the previous El Niño
- El Niño coincides with strong Pacific hurricane seasons but weaker hurricane seasons in the Atlantic, which could spare oil production
- Generally warmer US winter weather, which is bearish for natural gas
In 2015, the IMF wrote a paper on the macro effects of El Niño and concluded:
While Australia, Chile, Indonesia, India,
Japan, New Zealand and South Africa face a short-lived fall in economic activity in response to
an El Niño shock, for other countries (including the United States and European region), an El
Niño occurrence has a growth-enhancing effect. Furthermore, most countries in our sample
experience short-run inflationary pressures as both energy and non-fuel commodity prices
increase. Given these findings, macroeconomic policy formulation should take into
consideration the likelihood and effects of El Niño weather episodes.
The last El Niño period was 2014-2016.