S&P said the effects of the El Nino period starting in 2026 will reach Asia-Pacific mainly through weaker rainfall and climate disruption, and the macroeconomic impact is likely to be manageable.
Key transmission channels include reduced agricultural output, higher food inflation, diminished hydropower generation, and vegetation fires and haze.
Read more: US stocks: S&P closes at record high as soft jobs report eases rate-hike concerns
S&P said many economies have expanded food buffer stocks, improved import planning and strengthened market management mechanisms to cushion supply disruptions. At the same time, investments in reservoir management, irrigation infrastructure and water governance have strengthened resilience to periods of reduced rainfall.
“In India, strong food and grain buffers for affected crops as of July 2026 are key to managing food shock. In addition, authorities are enforcing district-level coordination with farmers to minimise crop losses,” S&P said in a recent report.
The World Meteorological Organisation (WMO) had last month said that strong El Nino conditions were developing and is expected to strengthen during August through October, bringing powerful weather events around the world.This could result in above-normal temperatures worldwide.
Read more: Low insurance penetration, reforms to drive ‘massive’ growth in India’s insurance sector: S&P
S&P said South and Southeast Asia are among the more vulnerable regions globally to El Nino. Lower rainfall associated with the climate phenomenon will raise food prices and disrupt water-intensive industries.
However, proactive policies would limit damage caused by El Nino. Measures such as shifting to water efficient crops, maintaining higher grain reserves, and improved water management, along with a declining role of agriculture, can buffer the fallout from a severe El Nino event.
“We expect countries with more reliance on agriculture for economic output and greater food reliance for consumers will be more exposed to the worst effects of this El Nino episode. Reliance on agriculture remains significant, but is gradually declining across the region. Lower hydropower generation is the next most significant channel,” S&P added.
Reserve Bank had last week said that deficient and uneven south-west monsoon amidst El Nino conditions poses some risks to the agriculture sector’s outlook and rural demand, and projected retail inflation at 5 per cent for FY27.
“Going forward, El Nino’s impact on temporal and spatial rainfall distribution continues to remain a risk, although proactive supply management and adequate stocks of foodgrains could provide buffers,” RBI said.