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June 1, 2023

Another victim of extreme weather: the economy

The impact of El Niño on the global economy is a call to action for not just climate mitigation but also business adaptation.

In the news

A new study published in Science magazine indicates that the extreme weather caused by El Niño-Southern Oscillation (ENSO) persistently reduces global economic growth—by a lot.

El Niño is a naturally occurring weather pattern that causes a rise in water temperature in the eastern and central Pacific Ocean. While affected countries and regions ultimately rebuild after the resulting extreme weather events, researchers Christopher W. Callahan and Justin S. Mankin, from Dartmouth College in the US, found that 56% of countries saw declines in economic growth averaging 2.3% five years after an El Niño event.

El Niños occur at two- to seven-year intervals, in an irregular and unpredictable cycle. Following the 1982-1983 El Niño event, the global economy had lost $4.1 trillion by 1988; after the 1997-1998 occurrence, global output fell by $5.7 trillion by 2003.

The global economic impact of El Niño events may be partially offset by their counterpart La Niña, a cooling of ocean waters in the same region that is also part of ENSO. This is because La Niña moves tropical rainfall to more continental areas, which can help agriculture and even reduce wildfire risk. But La Niñas are weaker than El Niños, so the overall economic impact of ENSO remains negative.

The U.S. National Oceanic and Atmospheric Administration anticipates a strong El Niño later this year. Callahan and Mankin told the Washington Post this could cost the global economy $3 trillion over the next five years (this calculation was not included in their research paper).

Given the acceleration of climate change, the researchers’ predictions are ugly not just for the coming years but also for the coming decades. Their model factors increased El Niño intensity from warming in line with current mitigation pledges, which may or may not be met. The result? A prediction of $84 trillion in income losses for the 21st century.

The Cognizant take

It’s wise to take projected losses with a pinch of salt. The researchers themselves acknowledge that "these effects are shaped by stochastic variation in the sequence of El Niño and La Niña events.” Moreover, “it remains to be seen whether or not global warming will actually intensify El Niño in the way that science is debating right now,” the researchers told the Post.

That being said, the study highlights the vulnerability of the global economy to climate variation —even before we consider the impact of climate change as such. A 2021 study led by Jarmo Kikstra of Imperial College London indicates that, taking into account lasting damages imposed by climate change, global GDP could be 37% lower by 2100 than it would otherwise be.

What’s clear is—regardless of the uncertainty inherent in any long-term projection—the world needs to not only accelerate its actions to mitigate climate change but also invest far more in adaptation to natural disasters. This includes building infrastructure that is more resistant to extreme weather and high temperatures, using drought-resistant crops and reinforcing costal defenses.

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