Mazars - A PERFECT STORM BREWING FOR OUR ECONOMY?2015-06-10 EL NINO IS COMING BACK
Recent research has quantified the impact El Nino has on the global economy. In some parts of the world (for example U.S.A.) it has positive effects on the economy. In other parts it reduces growth, increases food and oil prices and inflation. South Africa unfortunately falls into the second category. What is El Nino?It is the warm phase of the "El Nino Southern Oscillation" which causes air pressure to rise off the coast of Peru. This is counter cyclical to normal weather patterns and causes drought in certain areas and abnormally high rainfall in others. El Nino occurs irregularly (roughly every three to seven years) and the severity of its impact is also variable. What effect does it have?
It leads to widespread fluctuations in the production of primary products (agriculture, fishing, mining and forestry). As primary products in South Africa contribute 10% to Gross Domestic Product (GDP), this results in a 0.72% drop in the country's GDP during an El Nino episode. Get ready now!
The rise in food prices is especially harsh on food importing nations (such as the Middle East). Oil prices also increase as hydroelectric energy decreases resulting in more fuel demand. This could be devastating for some of our Northern neighbours such as Zimbabwe and Mozambique. Considering the recent xenophobic attacks, another influx of refugees could lead to more social unrest. |
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