South America is bracing itself for the impact of El Niño, with flooding and droughts intensified by climate change forecast to deliver a $300bn hit to growth for the region’s economies.
As the planet sweltered from the “hottest week on record” in early July, experts declared the return of El Niño, the weather event that warms the eastern equatorial Pacific Ocean’s surface and causes global changes in temperature and rainfall.
The World Meteorological Organization advised governments in affected areas, including south-east Asia, Africa, Australia and southern US states as well as South America, to act now “to save lives and livelihoods”.
South America, which is dependent on agricultural exports and already vulnerable to rising temperatures, is particularly exposed to the extreme weather that El Niño cycles can bring.
The phenomenon affects the region unevenly, bringing heavy rains to the Pacific coasts of Peru and Ecuador and droughts to parts of Colombia and Chile, while increasing the likelihood of wildfires in the Amazon rainforest.
Corficolombiana, a Bogotá-based financial services company, predicts that growth would contract by 1.7 per cent and 1.6 per cent in Peru and Ecuador respectively and 0.6 per cent in Colombia, with economists warning that food and energy shortages could cause another bout of inflation, spurring fresh interest rate rises.
“If inflation re-accelerates because of El Niño, it may interfere with central banks’ capacity to shift their monetary stance from restrictive to neutral [which supports stable growth],” said Alberto Ramos, chief Latin America economist at Goldman Sachs.
El Niño warms the usually cool and nutrient-rich Humboldt current off Peru and Ecuador’s coastlines and leads fish to migrate away from what are normally some of the world’s most productive fisheries.
Output in Peru’s fishing industry is projected to shrink by 19.3 per cent this year, according to Lima-based consultancy Thorne & Associates, after the production ministry cancelled the year’s first anchovy fishing season.
The small fish is used for fishmeal, of which Peru produces 20 per cent of global supply. Total fish production in Peru fell 70 per cent in May from the same month last year.
Lima has announced emergency measures worth $1.1bn to tackle the effects of El Niño, including funds for drainage systems, river defences and roads that could be damaged by torrential rain. Health authorities say floods will exacerbate an outbreak of the mosquito-borne dengue disease — already the country’s worst in decades.
The measures are on top of a $2.1bn package to boost economic recovery after parts of the country were shut down by violent unrest following the removal of leftwing president Pedro Castillo earlier this year.
But the country has previously squandered funds allocated to mitigate El Niño’s effects, said Alfredo Thorne, a former finance minister who runs Thorne & Associates, referring to stimulus packages worth $8bn in response to the 2014-16 El Niño cycle.
“Instead of using that money for the prevention of the effects of future El Niño events, the money went to building schools and other public spending,” Thorne said.
Ecuador, which lost 300 lives and $3bn in economic output to El Niño in 1997-98, also faces agricultural disruption. Banana growers report that 50,000 hectares are at risk, while sugar harvests have been delayed. The government has allocated $266mn to mitigate losses and damage.
In Colombia, droughts are expected to expose vulnerabilities in the country’s energy grid, about 70 per cent of which is served by hydroelectric power. Economists predict that reservoirs could fall from 65 per cent of capacity to 44 per cent during El Niño, forcing officials to consider increasing generation from fossil fuels.
Bogotá-based think-tank Fedesarrollo predicts a rise in energy bills in Colombia of 50 to 100 per cent depending on the severity of El Niño.
“El Niño is already factored into our growth projections,” said finance minister Ricardo Bonilla. “We’ve taken into account a reduction in the size of harvests due to drought and potential inflationary effects.”
In drought-hit Chile, scientists linked recent strong rains, the heaviest in 30 years, to a combination of El Niño and climate change.
Authorities declared an agricultural emergency in two central regions, freeing up funds to help farmers feed animals and provide support for insurance claims. The National Agricultural Society called for significant improvements in water infrastructure and reservoir capacity so they can benefit from heavier rainfall.
In Brazil, the region’s largest country, El Niño is expected to bring more rain to the south but less further north, making the Amazon rainforest more susceptible to wildfires.
Scientists fear that the impact of El Niño will be amplified by changing climate patterns.
“We have regions where during the dry season it is already 2.5C hotter and regions where there is 30 per cent less precipitation. El Niño happens on top of that,” said Erika Berenguer, a Brazilian researcher at the UK’s Oxford and Lancaster universities.
“This increases the likelihood of having forest fires, where everything can go wrong,” she said.
In Argentina, increased rainfall could benefit the agricultural powerhouse.
The 2022-23 soyabean harvest was less than half the preceding year, and the government said drought wiped out more than $18bn in forecast export earnings, increasing a severe shortage of dollars in a country blighted by triple-digit inflation.
However, the UN’s Food and Agriculture Organization has warned that parts of Argentina may suffer excessive rains whose impact on crops is harder to predict.
In every region, “the costs of climate variability and climate change” will probably exceed countries’ current estimates, said Justin Mankin and Christopher Callahan of Dartmouth College in the US.
The academics estimate that this year’s El Niño could cost the global economy $3.5tn in lost growth by 2029, with South America bearing about $300bn of that. The 1982-83 and 1997-98 events cost $4.1tn and $5.7tn respectively.
Mankin said “strongly teleconnected countries” — those linked to the same weather phenomenon despite their disparate locations — “that are least culpable for global warming are disproportionately going to bear the costs of it, as well as the costs of natural climate variations like El Niño”.
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