El Niño Risks Rise, With Uneven Macro Impacts Across Economies

The probability of a super El Niño event in 2026-2027 is rising, with mounting implications for Latin America and the Caribbean. The National Oceanic and Atmospheric Administration’s (NOAA’s) Climate Prediction Centre issued an El Niño Watch in April, placing a 61% probability on emergence in the May-July window. Furthermore, models are increasingly pointing toward peak sea surface temperature anomalies that would push the event into ‘super’ territory, a threshold passed only five times since 1950.
El Niño and La Niña are the warm and cool phases of a natural climate pattern across the Tropical Pacific known as El Niño-Southern Oscillation (ENSO). The two different phases represent variations in ocean surface temperatures in the central and eastern tropical Pacific Ocean, affecting wind and rainfall patterns.
For Latin America, El Niño does not affect the region uniformly. The dominant pattern causes droughts across Central America, the northern Andes, the Brazilian Amazon and the Pantanal, while pushing excess rainfall into the southern cone – southern Brazil, Uruguay, Paraguay and north-eastern Argentina.
For the Caribbean¹, El Niño’s effects are usually secondary compared with LATAM, but they are still significant. The phenomenon often brings hotter temperatures and below-average rainfall, increasing the risk of drought, water shortages and bushfires. Countries, like Jamaica, that depend heavily on rain-fed agriculture can face reduced crop yields and stress on livestock, while low reservoir levels can affect water supply. At the same time, warmer and drier conditions can damage coral reefs through coral bleaching, affecting fisheries and tourism.
The overarching result is a phenomenon that simultaneously tightens agricultural output, strains hydropower capacity and elevates inflationary pressures. One of the primary transmission channels is through external accounts, given the continued importance of agriculture for exports across much of the region despite modest diversification. This comes at a point when external balances for some countries across the region are already weakening into 2026, leaving less room to absorb a weather-driven export shock.
A second transmission channel runs through energy, particularly in those countries (e.g. Costa Rica, Colombia) whose electricity generation comes from hydropower. While recent rainfall has supported reservoir levels, these gains could reverse if El Niño emerges, raising energy costs and external pressures.
Finally, food supply disruptions have an outsized impact on inflation due to the large weight of food in CPI baskets. The 2015–2016 Super El Niño episode is an example of this dynamic, with food inflation outpacing headline rates across the LATAM region. In this cycle, the US–Iran conflict has already raised fuel and fertiliser costs, introducing an initial supply shock that has yet to fully pass through. An El Niño-driven shock in 2026 would compound this dynamic while posing risks of rising food production costs and reduced supply, which has increased the upside risks to inflation and could create more hawkish interest rate trajectories.

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¹Higher vertical wind shear in the Atlantic typically inhibits the development of hurricanes. However, recent trends show that record-warm Atlantic sea surface temperatures can sometimes counteract this effect, leading to a "tug-of-war" where intense storms can still form despite El Niño.

(Sources: BMI, A Fitch Solutions Company and NCBCM Research)