The headline may suggest nothing at all for a beginner. But for an expert or someone who watches the atmosphere keenly it all makes sense... Ok we'll join the dots as we read this piece.
After making people keeping their fingers crossed, 'it' has finally arrived. It, El Nino, The Child's arrival is for sure. So how is a common man going to get affected by this change in weather pattern other than remembering to take my umbrella, you ask? Wait pal, there is more to this child.
Weather forecasting agencies across the globe have predicted an imminent El Nino. The India Met Dept has said that there are 33% chances that rainfall will be deficient this monsoon, i.e. below 90%. It also forecast a 70% probability of El Nino this year. The Australian Bureau of Meteorology has declared that we are heading into a major El Nino event.
Since Indian agriculture is largely dependent on monsoon for its water requirements, higher probability of El Nino spells a sparse/deficient rainfall.
El Nino occurs when the surface waters warm up. It takes place in the entire equatorial zone of the central and eastern Pacific Ocean. It affects wind pattern and triggers droughts and floods which typically lasts for about a year.
But why India should be worried and what will be this El Nino's impacts on markets and all that?
Ours is basically a farm economy that contributes almost 18% to the country's GDP. And we are already battered by unseasonal showers resulting in crop damage and lower output. El Nino lowers the production of crops such as rice, sugarcane, palm oil, corn, cotton and oilseeds. With El Nino coming, which usually results in drought and parched climatic conditions, inflation cannot be ruled out and we should brace ourselves to shell out more for food. And if food inflation surges, the central bank may pitch in to hike rates, manufacturing sector will suffer, and companies will be nimble-footed in making investments slamming the brakes on growth rate and the blue-eyed Make in India project.
So, is El Nino all about a bad omen?
No, not exactly. Only the Pacific Rim economies such as India, Japan, Australia, S-E Asian nations suffer while the Western Hemisphere enjoys a bountiful harvest and conducive agri-economy climate. El Nino may trigger social unrest in commodity-dependent countries that rely on imported food.
El Nino results in both winners and losers. Countries in the western hemisphere such as the US, Canada, LatAm nations and the UK will stand to benefit as they wil receive a wet weather. This is a good news to the parched California. Also, the positive US data leads to a spillover effect on China. IMF says that China is less susceptible than other Oriental nations, policymakers might consider that any rise in the yuan due to increased trade with the US during the period might help suppress imported inflation. Stronger yuan might have some attractions in an El Nino environment for China but for many economies, El Nino surely spells trouble.
Around the world
For Australia and New Zealand, El Nino brings hot, dry summers and accompanying drought. This leads to razed down wheat production and exports and dry dairies. In Indonesia, which, of late, is emerging as the cocoa basket, crops such as coffee, oil palm and cocoa will suffer and earlier time when El Nino struck the country in 1997-98, it not only triggered poor harvests and crop cycles but also economic unrest and financial crisis.
El Nino and Currency market
Ok, agreed it affects investments, India inc all that. But then how can a weather condition value/devalue a nation's currency unit?
Yes, it can. In fact, to a larger extent than most of us think. If El Nino's effects can push dollar-denominated food and energy import prices, Asian economies such as India might prefer to have a stronger rupee to counter the threat of imported inflation. Also, China too may prefer to have a stronger yuan for its trade ties with the US - a nation that will surely be benefited by this climatic condition.
In short, agri-commodity exporting nations may benefit from higher prices but lose out from lower crop and industrial output.
No comments:
Post a Comment