El Niño‘s Back

Research evidence excerpt

El Niño‘s Back

Global Foundation

July 22, 2026 10:00 AM GMT

Morgan Stanley & Co. LLCMEM Sovereign Credit Strategy & Global Economics Emma C Cerda

Strategist

El Niño's Back Emma.Cerda@morganstanley.comSimon Waever +1 212 761-2344

Simon.Waever@morganstanley.com +1 212 296-8101

Chances of a very strong El Niño are rising. Risks are Mayank Phadke, CFA

concentrated in select EMs, with inflationary and fiscal pressures EconomistMayank.Phadke@morganstanley.com +1 212 761-1531

likely to outweigh growth risks. We view El Niño as a key Morgan Stanley & Co. International plc+

sovereign credit risk, particularly for countries with weak fiscal Neville Z Mandimika

buffers. We develop a framework to identify and assess these Neville.Mandimika@morganstanley.com +44 20 7425-2509

different exposures. Morgan Stanley C.T.V.M. S.A.+

Thiago A. Machado, CFA

Key Takeaways EconomistThiago.Machado@morganstanley.com +55 11 3048-6249

NOAA has confirmed El Niño conditions, now with an 81% probability of a very Morgan Stanley & Co. LLC

strong episode that could rank among the largest events on record. Nicolas Eterovic

Economist

From an economic standpoint, El Niño is a real food-price risk, but unlike oil its Nicolas.Eterovic@morganstanley.com +1 212 761-1245

impact is likely to be more gradual, more concentrated, and more EM-specific.

Morgan Stanley C.T.V.M. S.A.+

While it could delay disinflation at the margin, we do not expect it to prompt a Julia Lobato Barbosa

broader central-bank rethink. Economist

Julia.Lobato.Barbosa@morganstanley.com +55 11 3048-6016

From a market standpoint, the uncertain magnitude and timing of El Niño's Ana Madeira

impact make it hard to trade EM sovereign credit from a top-down perspective Economist

and instead forces a country-specific approach.