Fynsa
A wetter-than-usual winter, with an increased risk of flooding, flash floods, and disruptions in various parts of the country, according to the Chilean Meteorological Service, following reports that various international models agree on a nearly 90% probability that conditions will develop for the “El Niño” phenomenon to occur during the May-June-July quarter of 2026.
On June 9, the Central Bank of Chile published a blog post on the subject. According to the post, the probability of the phenomenon occurring exceeds 80%, although the likelihood that it will develop into an extreme event—the so-called “Super Niño” or “Godzilla Niño”—is estimated at around 30%. It is not a certainty, but neither is it a minor risk.
The problem is that this phenomenon is occurring at a time of economic fragility. In its March 2026 Monetary Policy Report, the central bank had already lowered its projected growth range for the year to 1.5%–2.5%, warning that supply-side factors in sectors such as agribusiness and mining would affect economic activity. Against this already tight backdrop, a severe weather event could add further pressure.
With regard to prices, the Central Bank’s empirical evidence points to modest increases in the overall CPI, with more significant increases in weather-sensitive components, particularly fruits and vegetables. In terms of economic activity, the negative effects are concentrated in non-mining GDP, with the greatest impact on fishing and manufacturing. Agriculture, meanwhile, shows a more favorable initial response associated with improved water conditions, although estimates are subject to greater uncertainty.
One surprising aspect is the relationship between this phenomenon and hydroelectric power generation. Intuition suggests that more rain means more energy, but the evidence does not support this. Hydroelectric infrastructure is located mainly in the south-central region, while the heaviest rainfall is concentrated in the north and north-central regions. This geographical disconnect explains why the phenomenon can drive up generation costs and put pressure on energy prices, even when it rains more.
History supports these concerns. Previous episodes—1982–83, 1997–98, and 2015–16—were associated with significant disruptions to the fishing and agricultural sectors. The consulting firm Marsh estimated that Chile loses an average of nearly $4.5 billion annually due to natural disasters, equivalent to approximately 1.5% of GDP. Recent events are illustrative: the June 2023 weather system left more than 19,000 people displaced and caused infrastructure losses of between US$230 million and US$273 million, while subsequent events resulted in agricultural damage of nearly US$720 million.
All in all, the technical consensus is clear: this is a sectoral and a temporary one, not a structural slowdown. The Central Bank concludes that the effects of El Niño should be assessed through their specific channels—sectoral activity, water availability, electricity generation, and food prices—rather than as a generalized disruption. The phenomenon does not explain the underlying problems of the Chilean economy, but it may complicate the recovery that everyone expects in the second half of the year.
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