Fitch Ratings has indicated that the emergence of the El Niño weather pattern, expected to last until early 2027, poses a heightened risk of economic instability for various countries. While Fitch does not anticipate making rating adjustments directly linked to El Niño unless its impacts are evident in credit assessments, the associated environmental challenges may exacerbate fiscal, growth, inflation, and external liquidity issues for more vulnerable nations.
On June 11, the United States National Oceanic and Atmospheric Administration announced the development of El Niño conditions in the tropical Pacific region. The agency noted a 63% likelihood that sea surface temperatures could surpass the threshold for a particularly strong El Niño event. Projections from the US Climate Prediction Center on June 8 suggest a 96% probability that El Niño will persist through the period of December 2026 to February 2027.
El Niño typically causes atypical dry weather in certain areas while leading to increased rainfall in others. These environmental shifts that disrupt agricultural or economic operations could negatively impact the credit ratings of lower-rated countries, particularly those in the ‘B’ category or lower, which may struggle with limited access to markets and a history of rising debt during crises. Conversely, some regions might experience positive effects, such as improved agricultural yields from additional rainfall.
Global agricultural production is already facing challenges due to soaring fertilizer prices stemming from supply chain disruptions linked to the US-Iran conflict. Ongoing shortages could heighten the risks associated with food commodity prices globally as influenced by the El Niño phenomenon, potentially impacting inflation rates even in countries with strong credit ratings.
The comprehensive report titled “El Niño Could Add to Risks Facing Weaker Sovereigns” can be accessed by clicking the link above or visiting www.fitchratings.com.
