Latin America Data Watch: Same storm, different boats

Research evidence excerpt

Latin America Data Watch: Same storm, different boats

a 30bp

to remain modest given Brazil’s limited exposure to the U.S. impact of El Niño on inflation, mostly concentrated in 1Q27,

market. Instead, the main risks to the outlook stem from and a drag of 0.1%ar on activity.

domestic politics, inflation dynamics, and weather-related

Ecuador is among the Latin American economies most

shocks.

exposed to El Niño. A severe event can disrupt agriculture,

El Niño is a particularly clear example of this “same storm, damage infrastructure, and impair oil production. We estimate

different boats” dynamic. Both inflation and activity are like- a GDP hit of around 2 percentage points, with risks tilted to

ly to be affected by a strong event in 2H26 and early 2027, the downside (lower growth) under a very severe event,

but the direction and magnitude of the effects vary substan- though these headwinds are likely to be partly cushioned by

tially across countries. The impact of the weather event is fiscal support amid the regional election cycle. For Bolivia’s

already becoming visible in Peru, where fisheries activity col- economy, there are three key channels of impact: lower agri-

lapsed in May. As we have argued previously, two structural cultural and livestock output, higher food inflation due to sup-

asymmetries drive the regional macro story. Peru and Colom- ply disruptions, and infrastructure damage that raises logistics

bia occupy the textbook El Niño configuration, where stron- costs and disrupts supply chains. Given food’s large weight in

ger ENSO episodes tend to weaken growth while pushing the CPI basket, a weather-driven shock could complicate the

inflation higher. Peru’s transmission runs through fisheries, nascent disinflation process, with our baseline already incor-