By Aroni Chaudhuri, Chief Africa Economist, Coface
For much of the past two years, economists, policymakers and businesses have focused on familiar risks: inflation, interest rates, geopolitical tensions and slowing global growth. Yet one of the more significant threats to economic stability comes from a different source altogether: climate risk.
Forecasts are pointing towards the growing likelihood of a strong El Niño event at the end of 2026, a climate phenomenon historically associated with higher temperatures, below-average rainfall and agricultural disruptions across large parts of Southern Africa. Beyond environmental implications, the economic consequences of climate change are increasingly disruptive, especially in emerging and developing economies (EMDE).
For South Africa, the timing is particularly important.
Recent agricultural performance has been exceptionally supportive of economic activity. Favourable rainfall patterns associated with La Niña conditions in 2025 have contributed to strong crop production, improved food supply and downward pressure on food prices. Agriculture was one of the sectors that supported growth when domestic demand showed signs of weakening.
However, historical data show that South African agricultural output is strongly correlated to El Niño and La Niña cycles. While La Niña generally supports production in Southern Africa, El Niño tends to have the opposite effect. Reduced rainfall, prolonged dry periods and higher temperatures often place pressure on crop yields, livestock production and water availability.
The concern today is not only about an El Niño occurrence. Increasingly, forecasts suggest the world could experience a stronger version of this phenomenon, potentially resulting in longer lasting and more severe impacts than many businesses currently anticipate.
The economic consequences extend far beyond agriculture.
Food disinflation has played a critical role in keeping headline inflation relatively contained in many developing economies. In South Africa and elsewhere on the continent, lower food prices have helped offset broader cost pressures affecting households and businesses.
That dynamic could soon reverse.
The challenge is that El Niño affects multiple countries across the globe. Major agricultural producers including Brazil, India, Indonesia and Vietnam will also face weather-related risks. When agricultural production declines across multiple regions simultaneously, agro-commodity prices rise.
For Southern Africa, maize remains particularly important.
The region’s food system is heavily reliant on stable maize production across countries such as South Africa, Zambia and Zimbabwe. Any significant decline in output has the potential to accelerate food inflation throughout the region, placing additional pressure on households that are already facing constrained budgets.
This matters because the impact of food inflation is much stronger in EMDEs, relative to advanced economies.
Food expenditure represents a larger share of household spending across much of Africa. As food prices increase, consumers have less disposable income available for non-essential purchases of goods and services, which in turn slows economic growth. Furthermore, the impact of high food prices extends into food security, social stability and trade balances.
There is also a longer-term risk on agricultural yields.
Extreme weather events such as droughts, heatwaves and wildfires can affect agricultural productivity beyond a single growing season. Damaged soil quality, reduced water availability and lower crop yields may take years to recover. In this sense, climate shocks should not be viewed as short-term interruptions but as structural risks that alter economic performance over an extended period.
This is particularly relevant for Africa, as many economies across the continent remain highly dependent on agriculture, both as a source of employment and economic activity.
For South Africa, the immediate outlook remains supported by recent agricultural gains and resilient export segments. But the downward risks associated with El Niño are growing, and the effects may only become fully visible over the next agricultural season.
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