Watch out for El Niño causing "3 wounds" to the world economy.

Thai entrepreneurs should prepare for El Niño events well in advance to have contingency plans in place to mitigate risks and seize opportunities in the crisis before their competitors.

We're halfway through 2566, and it looks like it will be another year full of challenges all around. In particular, the global economy is likely to slow down amid many risk factors that are accelerating. Recently, there is another factor that is beginning to cause concern for many parties.

Following the World Meteorological Organization (WMO)'s prediction that there is over a 90% chance the world will experience its first El Niño phenomenon in four years between the second half of 2023 and 2024, some analysts even suggest a 56% chance this El Niño will be more severe than usual.

El Niño is considered a natural phenomenon that causes many areas of the world to experience more severe drought conditions than usual, such as Southeast Asia, Australia, India, Central America, Western and Southern Africa, etc.

At the same time, it causes many other areas to face more rain than usual, such as South America, Central Asia, East Africa, the southern United States, etc. Since statistics were kept, the world has experienced El Niño more than 30 times, and each time lasts approximately 12 weeks. -18 months

This year, these signs appear to be becoming increasingly clear. For example, in early July 2566 , the average global temperature reached a record high of 17.23 degrees Celsius, causing many countries to face severe heatwaves, while other areas experienced equally severe flooding. Past El Niño events have caused immense damage to the global economy.

In particular, the two most severe El Niños were in 2-2525 and 2526-2540 that caused damage to the world economy worth as much as 2541 trillion US dollars and 4.1 trillion US dollars, respectively, while El Niño in This time, researchers from Dartmouth College in the US estimate it could cause more than $5.7 trillion in damages. or has a value nearby with the size of the Indian economy.

The El Niño phenomenon will not only put pressure on the momentum of the overall global economic recovery, but it may also be a catalyst that rekindles three existing wounds in the global economy, as follows:

food security…“chronic wounds” that are difficult to heal

This problem is a structural problem that has existed in our world for a long time. This is reflected in The Global Report on Food Crises, which found that in 2565 there will be approximately 258 million people in the world in 58 countries facing severe food insecurity. or an increase of more than 22.7% from the previous year.

However, this situation may become more serious this year and next. Because the Food and Agricultural Organization (FAO) recently estimated that there are more than 60 countries around the world. Most of which have Food Security Index values ​​at a relatively low level. It is likely to be affected by El Niño this time.

Especially countries in Africa and Latin America that already have fragile economic fundamentals. Or even many countries in Asia that rely on the production and export of agricultural products in high proportions may inevitably be affected.

Past FAO studies have shown that El Niño events often impact agricultural production, affecting crops such as wheat, rice, corn, sugar, bananas, palm oil , coffee, cocoa, and cassava . This poses a risk of reduced production and income for countries producing these commodities.

At the same time, countries that rely heavily on imports for these products may face raw material shortages and higher costs. Recently, agricultural agencies in many countries have begun to predict that many important agricultural products this year will decrease quite a lot. For example, Malaysia expects oil palm production to drop by 20% and Australia expects wheat production to decrease. decreased by 34%, etc.

In addition, the situation has caused many countries to continue to restrict the export of certain agricultural products and foods. Since the war between Russia and Ukraine last year, for example, India has banned the export of sugar, wheat, broken rice, etc.

China bans export of corn flour Russia and Argentina Collect export taxes on soybeans Including Vietnam, which plans to reduce rice exports to around 4 million tons per year from 7 million tons in 2565 to deal with the problem of rising seas and impairing food security in the country.

Therefore, if the El Niño situation becomes more severe and lasts longer, it may cause the economies of many countries in the affected areas to be affected, either directly or indirectly. At the same time, it increases the risk of global food security even more seriously.

inflation problem…“fresh wounds” that still seep blood

Although the current inflation situation in many countries has started to slow down somewhat. After the price of oil in the world market in the first half of 2566 dropped on average by more than 25% compared to the previous year. coupled with economic activity showing signs of slowing down This has caused central banks of many countries around the world to increase interest rates until they reached the highest level in more than a decade. Starting to change their attitude towards maintaining the policy interest rate in meetings that take place from the beginning of 2566 onwards, especially in countries in Latin America and Asia.

However, the El Niño situation is expected to gradually intensify and affect important agricultural products as mentioned above. This will push agricultural product prices up. Recently, the average price of many agricultural products in June 2566 has continued to increase, such as the price of cocoa increasing by approximately 37% (yoy), sugar (30%), bananas (16%), rice (15%), etc., making it possible that after this, if the crisis If Niño expands widely, it may increase prices of other agricultural products.

Including the inflation in many countries has accelerated or will remain high for a while. Especially developing countries where the weight of food and beverage categories in the inflation basket is relatively high. Which, of course, The above factors will affect the direction of monetary policy in many countries in the next period. As a result, many people previously thought that the rising interest rate cycle was nearing its end. You may have to come back and reconsider.

Supply Chain Disruption…“scaly wounds” that may become inflamed again

Since the beginning of 2566, the Supply Chain Disruption problem appears to be solving in a continuously better direction. especially the shortage of containers high freight rates And the chip shortage problem is reflected in the Global Supply Chain Pressure Index (GSCPI), which has decreased for 5 months in a row since the beginning of 2566, while freight rates have dropped by approximately 80% from the same period last year.

However, the current drought conditions in many areas around the world have begun to affect international transportation, particularly shipping through the Panama Canal, which accounts for more than 6% of global cargo and is facing the most severe drought in 70 years.

By The Panama Canal Authority, water levels at the end of July 2566 are expected to be the lowest on record. This will cause cargo ships to reduce their load weight. Use more rounds. This may result in higher transportation costs as well.

Furthermore, the drought has impacted not only the supply chains of the agricultural and food industries, but also other industries that use a high proportion of water in their production. These include traditional industries such as textiles, energy, and petrochemicals, as well as future industries like semiconductor (chip) manufacturing, which is another industry that uses a high proportion of water.

If you look at the water usage statistics of Taiwan Semiconductor Manufacturing (TSMC), the world's largest chip producer, it is found that in 2564, water was used up to 82 million metric tons, an increase of two times compared to 2 years ago by TSMC. It uses more than 5 tons of water per day, or equivalent to the water usage of more than 1.5 Taiwanese people, causing many to worry that if a drought situation occurs in Taiwan. China and South Korea which is the world's largest chip producer It may affect the supply chain of chip production more or less.

Most recently, in the first half of 2566, Taiwan faced a period of rain that left many important water reservoirs with less than 30% water remaining, while in June-July 2566, many cities in China and South Korea also faced heat waves. The most severe in many years

For Thailand, which is one of the countries that are likely to be affected by El Niño, many areas of Thailand are currently experiencing a period of rain. Since the beginning of 2566, Thailand's average rainfall has been 25% lower than normal, while water reservoirs
The large reservoir contains less than 30% of water, causing many parties to expect that it will affect many important agricultural products such as rice, sugarcane, corn, cassava, rubber, palm oil, etc., which may put pressure on the recovery of the Thai economy as a whole, including:

• private consumption that may be slowed down by decreased farm income Aggravating the problem of household debt, which is still at a high level of approximately 90% of GDP, farm income in 2565 expanded by 13.3%, helping to drive private consumption to expand by 6.3%, the highest in 10 years.
• export Agricultural products and agro-industry may slow down. The former has always been a hero in driving Thai exports. This is reflected in the exports of this category of products in 2565 that expanded by 9%, more than total exports that grew by 5.5%. It may also affect purchasing power in other products. of trading partners facing El Niño as well. However, if Thailand has good water management, it may be an opportunity for Thai agricultural products to replace products from other countries' producers as well.
• inflation That may return to accelerate at the end of this year and next year. This is because Thailand has food and non-alcoholic beverages in the inflation basket of more than 40% and food inflation above 5%. Such factors may affect the direction of interest rates. and exchange rates that may fluctuate continuously

In this regard, there is a recent assessment from a joint committee of 3 private sector institutions (SEC) that El Niño will affect the Thai economy in 2566 by 3.6 billion baht, or approximately 0.2% of GDP.

Therefore, Thai entrepreneurs should prepare to deal with such situations early on. In order to prepare an escape route to prevent risks and find opportunities in crises before competitors.