Emerging Markets Economic Outlook & Strategy: One Shock to the Next – Macro Impact of El Niño on EM

Research evidence excerpt

Emerging Markets Economic Outlook & Strategy: One Shock to the Next – Macro Impact of El Niño on EM

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26 Jun 2026 05:45:13 ET │ 115 pages

Emerging Markets Economic Outlook

& Strategy

One Shock to the Next – Macro Impact of El Niño on EM

Johanna Chua AC

CITI'S TAKE +852-2501-2357

johanna.chua@citi.com

Rising risks of a Super El Niño could present a potentially significant

inflationary shock to EM, complicating the macro outlook even as lower Ernesto Revilla AC

energy prices offer relief. Primary risk stems from food inflation, +1-212-816-2621

disproportionately impacting those with high food CPI weights and net ernesto.revilla@citi.com

import reliance. This, coupled with secondary risks to hydro power supply in AC

climate affected areas, could force some EM central banks to maintain a Gina Schoeman

hawkish stance for longer (e.g. BSP, SARB, Banrep). At the same time, we +27-11-944-0813

argue India’s agri production has been more resilient to deficient monsoons, gina.schoeman@citi.com

has supply buffers, and a shift to positive IOD would help. Overall, our AC Yuanliu Huestimated inflationary impact from El Nino is very heterogenous,

necessitating country-by-country discussion. +852-2501-2746

yuanliu.hu@citi.com

Lower oil is a relief, but not a full macro reset. Citi’s commodities team now expects Luis E Costa, CFA AC

Brent at US$75/bbl in 3Q26 and US$60–65/bbl by 1Q27, however, we forecast only +44-20-7986-9757

a relatively small inflation relief in EM Europe and Asia, while raising Latam inflation luis.costa@citi.com

forecasts. Lagged energy pass-through, elevated food inflation risks, energy price

rigidity (e.g. Egypt looking to pare back subsidies), robust growth among AI capex

beneficiaries and persistent inflationary pressures from fiscal/wages (e.g.