El Niño could drag down the global economy by almost $700 billion or $3 trillion—and the choice is ours

The US National Weather Service has announced the arrival of an El Niño, the warm phase the Central Pacific warming and cooling cycle that affects weather across the globe. The odds favor a "very strong" or (more colloquially) Super El Niño. The El Niño Southern Oscillation (ENSO) is the dominant force shaping year-to-year changes in global weather and will likely drive record-breaking temperatures and extreme flooding and drought events around the world. The global effects of El Niño have already started and arrive at different times in different places, with the effects typically peaking in the northern hemisphere winter (November to February). The imminence of the danger calls for immediate action by multilateral development banks to assist poor and middle-income countries likely to be affected and working with humanitarian organizations to pre-position food and other humanitarian aid.

The National Weather Service announcement of June 11, 2026, was a clear warning. If the intensity of El Niño winds up of similar magnitude to the last Super El Niño in 1997–98, the contemporaneous economic losses will be on the order of $686 billion. Unless the international community and national-level policymakers start acting now, those losses could rise to $3.1 trillion over the next five years.

Arriving at the big numbers

To estimate the economic costs of the impending El Niño, the analysis presented here is anchored in Christopher Callahan and Justin Mankin's 2023 analysis of global growth effects of El Niños. Using data from 1960 to 2019, Callahan and Mankin assessed both the contemporaneous and five-year impacts of El Niño on global economic growth, demonstrating that El Niños had strong, adverse effects on growth in the moment but also by depressing investment that drives future growth. Their framework links each country's economic exposure to its "teleconnection strength"—essentially, how strongly its local temperature and rainfall respond to warming in the eastern Pacific.

Their year-one elasticities, which estimate how much a given El Niño event reduces GDP growth in the event year itself, are applied here to the roughly 88 countries the paper identifies as strongly or moderately teleconnected.

Grouping those countries by teleconnection strength and applying their collective GDP base of approximately $38 trillion, this analysis scales the elasticities to match the anticipated magnitude of the 2026 event—roughly comparable to the very strong 1997–98 El Niño.[1] That produces a contemporaneous global loss estimate of approximately $686 billion. Extending that figure using Callahan and Mankin's ratio of five-year cumulative losses to year-one losses—approximately 4.5 times, derived from their figure 1D—yields a five-year estimate of roughly $3.1 trillion. This five-year figure does not assume any additional shocks. It simply reflects the compounding effect of reduced investment in the years following the initial event, which is precisely where the policy window lies. The one-year losses—$686 billion—amount to roughly 0.6 percent of global GDP.

Effects fall heavily on the tropics

A loss of 0.6 percent of global GDP is significant in its own right, but that central estimate masks wide regional variation. The most strongly teleconnected countries in the sample are disproportionately lower- and middle-income countries (LMICs) in the tropics: Ecuador, Peru, Indonesia, Malaysia, Suriname, Panama, Nicaragua, Togo, Zambia, and Costa Rica comprise the top 10 most strongly teleconnected countries in the sample. Of the estimated $686 billion total loss, $535 billion is concentrated in 51 countries with a combined GDP of approximately $16 trillion; for those countries, the losses amount to 3.3 percent of GDP.

The channels by which El Niños suppress growth are multiple and mutually reinforcing. Failed harvests reduce farm incomes and drive up food import bills, diverting foreign exchange from productive investment. Flooding and mudslides damage roads, electricity grids, and other infrastructure—and rebuilding them crowds out spending on the public investments that compound into long-run growth.

Elevated disease burden reduces labor productivity and diverts household and government resources toward treatment rather than investment. And because many of the most teleconnected countries are already carrying heavy debt loads from the COVID-19 pandemic, they have limited fiscal space to mount countercyclical responses. These various sources of hardship increase the risk of civil conflict significantly, with further growth-destroying effects. And of course, all this is occurring as the effects of the roughly four-month closure of the Strait of Hormuz[2] are working their way through the global economy, spurring inflation and limiting access to fertilizers and likely causing a food price spike in late 2026 to early 2027.

The result is not a single dramatic blow but an accumulation of smaller ones likely to erode the investment base driving future growth: death by a thousand cuts that are only partially visible in real time, but cumulatively significant.

Preventing multi-year losses

Because of resource diversion to addressing El Niño impacts in real time and the compounding effects of forgone investment, some multi-year economic losses are unavoidable. But as with carbon emissions and global warming, there are still benefits to "bending the curve," or in this case, weakening the elasticity between the initial shock and the investment collapse that follows. The $686 billion in year-one losses are largely baked in. The additional $2.4 trillion in cumulative losses over the following four years (which together with the year-one losses sum to the $3.1 trillion five-year total) is not. That gap represents thousands of deferred investment decisions—factories not built, crops not planted, clinics not stocked—that are sensitive to the availability of credit, fiscal space, and external support.

The window for action is narrowing but still open. Two priorities for action stand out:

1. Multilateral development banks—the World Bank, regional development banks, and the International Monetary Fund (IMF)—should pre-position concessional credit facilities for high-teleconnection LMICs before the peak of the event, not after. The general pattern with respect to climate-related shocks has been that affected countries face widening sovereign spreads precisely when they most need to borrow to maintain investment and social spending. Getting ahead of that dynamic—approving facilities now that can be drawn on quickly—is the single highest-return intervention available. The IMF's Resilience and Sustainability Facility exists for precisely this purpose, but its eligibility requirements and capitalization make it a niche instrument rather than a rapid-response one. This is a moment to waive or streamline those requirements.
2. Global food reserves and humanitarian pre-positioning should begin now. The combination of El Niño–driven harvest failures and the ongoing Hormuz-related fertilizer supply disruption creates a compounding food price risk in late 2026 and early 2027 that is foreseeable and partially preventable. The World Food Program (WFP) desperately needs additional capitalization, given contributions have waned as traditional major donors—the United States, EU member states, and the advanced economies of North Asia—face energy crunches and a push for rearmament. The United States has been pivotal in both, slashing its contributions to the WFP by 54 percent in 2025, and the Trump administration has been—with strong tailwinds courtesy of Russian president Vladimir Putin—the driving force behind Europe's rearmament push.

For a global economy already reeling from the wars in Ukraine and the Middle East, and the prolonged Hormuz closure, the arrival of a potential Super El Niño is less-than-welcome news. But the international community can still act to ensure that the unavoidable losses do not compound into the future and that current food needs are met. The forecast is known. The growth effects are known. The question is whether the international community can act on foresight rather than wait passively for the losses to reverberate for years to come.

Notes

1. ENSO strength can be measured a variety of ways. For comparability with Callahan and Mankin's study, we assume an E-index value of 3.5; the actual E-index value for the 1997–98 El Niño event was 3.84. Evidence is beginning to suggest this year's El Niño could surpass 1997–98, so the estimates presented here can be considered conservative.

2. Which may or may not be over, as this piece goes to press.