El Nino may persist through 2027 raising inflation risk in highly rated sovereigns: Fitch
New Delhi, June 17
At a time when global crop yields face uncertainty due to rising fertiliser prices amid the ongoing West Asia conflict, the likelihood of El Nino persisting through 2027 has increased, posing risks to inflation even in highly rated sovereign economies, according to Fitch Ratings.
"The formation of an El Nino weather phenomenon that is set to persist into early 2027 raises the risk of economic disruption in a range of sovereigns," it said.
El Nino is a phenomenon that brings unusually dry conditions in some regions and heavier-than-normal rainfall in others.
As per Fitch Ratings, environmental conditions hampering the agricultural or economic activity could weaken the credit profiles of lower-rated sovereigns, specifically "those in the 'B' category or below with limited market access or a record of rising debt in crises."
Meanwhile, some regions could benefit from changing weather patterns, particularly areas where increased rainfall supports agricultural output, improves crop yields, and strengthens food production.
While Fitch is unlikely to downgrade or change a country's credit rating only because of El Nino. However, if El Nino-related impacts become severe enough to hurt a country's economy -- such as weakening growth, increasing inflation, worsening government finances, or putting pressure on foreign exchange reserves -- then it could affect sovereign ratings, especially for more vulnerable countries.
"Fitch is unlikely to link rating actions directly to El Nino unless the effects are clearly reflected in credit metrics, but related environmental stresses could intensify fiscal, growth, inflation and external liquidity pressures for sovereigns that are more vulnerable," the report said.
Noting "US Climate Prediction Center's 8 June projections indicate a 96% chance that El Nino will continue through December 2026-February 2027," Fitch said sustained shortages will likely "amplify risks to globally traded food commodity prices."
"Global crop yields already face uncertainty due to higher fertiliser prices on supply disruption associated with the US-Iran war. Sustained shortages could amplify risks to globally traded food commodity prices posed by an El Nino phenomenon, potentially affecting inflation prospects even in highly rated sovereigns," it added.
— ANI
Reader Comments
Fitch is right to worry but they always focus on 'B' rated sovereigns. What about us? India's monsoon is crucial for GDP. If El Nino weakens monsoon, inflation will spike and RBI will have to hike rates again. Common man will suffer due to high vegetable prices. Hope the government has a contingency plan.
Interesting observation but I think it's a bit overblown. India has buffer stocks of food grains. Also, our agricultural research has improved a lot. But yes, persistent El Nino until 2027 is concerning for global food prices. The US-Iran war affecting fertilizer supply is a bigger immediate threat for us.
Honestly, main ghar ki mahila hoon - har cheez ka rate pata hai. Sabji 50-60 rupay kilo pahunch gayi hai. Agar El Nino ne aur gadbadi ki toh poor family will starve. Government should announce MSP hikes and ensure PDS reaches everyone. Also, why is green energy not being pushed more to reduce fertilizer dependency?
As someone who follows climate economics, Fitch's analysis is sound. El Nino events historically cause inflation spikes in developing nations. But I find the report's emphasis on 'highly rated sovereigns' a bit ironic - India is rated BBB- which is investment grade, but the risks are real for our cereals exports too.
Arre yaar, global chinta toh sabko hai par India apna nukta dekh le. Hamare yahan already im
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