Assessing El Niño’s Uneven Impact on EM Sovereigns

The current “Super” El Niño could amplify inflation, weaken growth and deteriorate fiscal balances unevenly across emerging-market sovereigns, creating both risks and relative-value opportunities.

• El Niño affects economies through weaker output in agriculture, livestock, mining and utilities, supply-driven inflation and commodity-price spillovers, and lower tax revenues combined with higher social spending and infrastructure-repair costs.
• Peru’s 2015–2016 Super El Niño provides a cautionary case: the country avoided recession, but its primary fiscal balance moved from surplus to deficit and took three years to recover, while inflation and growth were worse than historical norms; metals-price weakness also makes the climate effect difficult to isolate.
• PHIRE™ identifies India as the most vulnerable sovereign because drier and hotter conditions coincide with a weak monsoon forecast and reliance on the Strait of Hormuz for fertilizer imports, although GDP growth reached 7.8% in the second quarter of 2026; Indonesia faces similar pressures.
• Peru, Chile, Uruguay and Costa Rica score well on infrastructure quality, preparedness, catastrophe-funding access and macro-financial resilience, while Argentina, Paraguay and southern Brazil have historically benefited from El Niño conditions.
• Combining PHIRE™ with the firm’s proprietary EM valuation tool produces three groups: rich and risky sovereigns such as Sri Lanka and Indonesia; cheaper, climate-resilient markets including Argentina, Ecuador, Mexico and South Africa; and “El Niño hideouts” concentrated in Sub-Saharan Africa, Central and Eastern Europe and Central Asia.

Takeaway: Investors should assess El Niño exposure country by country and favor sovereigns offering both attractive valuations and climate resilience, while recognizing that the forecasts and market conditions remain uncertain.