The Economics of El Niño
A look at climate challenges in Southeast Asia
June 2025Photo: Adobe
As our world confronted the ongoing challenges of climate change, July 2023 became a record-breaker as the hottest month ever documented. And the 2023–24 El Niño emerged as one of the largest climate anomalies of the 21st century. Coupled with record-breaking sea surface temperatures in the Atlantic, the 2023 Atlantic hurricane season became the fourth most active on record (tying with 1933), and set a new all-time high for the number of storms in an El Niño year.
El Niño South Oscillation (ENSO), a natural climate phenomenon, involves two opposing phases: El Niño (warming) and La Niña (cooling). Each phase leads to significant effects on global weather patterns. In Southeast Asia, El Niño often brings about increased temperatures, prolonged droughts, and various other related impacts.
Our research reveals that the collective economic impact of climate change on Southeast Asia nations—a region highly exposed to El Niño events and with a vulnerable economy—has been as high as 295 billion SGD over the past 30 years. This exposure underscores the substantial financial stakes at play in addressing the effects of El Niño and climate change in the region.
Southeast Asia’s Climate Risk Exposure
Historically, developing countries have been more vulnerable to ENSO. In Southeast Asia, El Niño often triggers reduced rainfall, leading to drought conditions. This poses challenges for agriculture, water resources and power grid stability. As of 2021, about 29% of the workforce in Southeast Asia is employed in the agricultural sector, with an even higher portion in Laos (58%) and Myanmar (46%). Moreover, reduced rainfall and drought conditions amplify the risk of wildfires. Prevailing winds from other Southeast Asia countries transport hazardous haze to Singapore. This haze carries pollutants that degrade air quality and impact health conditions, leading to economic repercussions due to healthcare costs and work disruptions.
In contrast, more developed nations, such as Singapore, have shown a comparatively stronger resilience to El Niño, as their economies are less immediately exposed to short-term climate disruptions. However, it’s crucial to recognize that Singapore is not exempt from various challenges from climate change. For example, the shocks felt in the agricultural sector reverberate through the supply chain, ultimately affecting all participants in global markets. Furthermore, the escalated need for cooling during extreme heat associated with El Niño can still strain the energy grid and potentially lead to price hikes.
Impact of El Niño on Southeast Asia Economy
Research from Nanyang Technological University (NTU), Singapore, and City University of Hong Kong revealed the cumulative impact of El Niño events on Southeast Asia’s economies. According to the research, Indonesia bears the heaviest burden among affected countries, with a cumulative loss of approximately 13% in its GDP per capita in 2023 compared to a scenario without El Niño events since 1990.
Furthermore, Myanmar, the Philippines, Malaysia and Singapore have also felt economic setbacks due to El Niño, with losses surpassing 2% of their GDP. Of particular note is Singapore, where the impact translates into a substantial decline of SGD 2,700 in GDP per capita when compared to scenarios without El Niño’s influence.
Figure 1: Cumulative Impact of El Niño on Indonesia’s GDP Per Capita since 1990
Graphic: Authors
Figure 2: Cumulative Impact of El Niño on Singapore’s GDP Per Capita since 1990
Graphic: Authors
One Immediate Impact: El Niño Raises Singapore’s Electricity Consumption
The research by Nanyang Technological University and City University of Hong Kong closely examined electricity consumption patterns in Singapore during El Niño events and observed a 1.4% increase in monthly household electricity consumption during these periods. The increase is found statistically significant for all types of dwellings, except 1-room and 2-room Housing and Development Board public housing (HDB) units. The most striking surge in electricity usage occurred during the major El Niño period from October 2015 to March 2016, when the increase spiked to a substantial 3.2%. El Niño’s impact on electricity consumption can vary in intensity not just over time but also across different regions. In Singapore, for example, the percentage of extra electricity consumed during the 2015–16 major El Niño varied from 2% to 5% in a relatively close regional proximity. This rise is likely driven by higher ambient temperatures and prolonged dry conditions associated with El Niño, which increase demand for cooling—particularly from air conditioning in households and commercial buildings.
Between 2005 and 2022, Singapore residents collectively spent an additional 100 million SGD (inflation adjusted to 2023) in total to cover the extra 401 gigawatts of electricity consumption resulting from El Niño-induced weather anomalies.
To put this into perspective regarding climate change, the extra electricity consumed due to El Niño in the city-state of Singapore alone is equivalent to emitting 172,000 tons of CO2 into the atmosphere or using 35,000 tons of oil. This level of emissions is comparable to the annual carbon footprint of approximately 36,000 people, based on the global per capita average, or the emissions produced by more than 37,000 gasoline-powered cars driven for an entire year.
Short-term and Long-term Global Economic Impact
The Climate Prediction Center of the US National Oceanic and Atmospheric Administration (NOAA) estimated that between December 2023 and February 2024, the average sea surface temperature anomaly in the equatorial Pacific Ocean reached 2.0°C. The extra heat caused more extreme temperatures in different regions and seasons, melting snow and sea ice, making heavy rain even stronger. This El Niño event persisted until April 2024.
The impact of El Niño resulted in a 1.4% to 3.1% slowdown in Singapore’s GDP per capita growth for the year 2024. Crucially, the economic implications of El Niño extend far beyond the year of the event itself. The two most paramount El Niño events in history, those that occurred in 1982-83 and 1997-98, generated global economic losses exceeding $4.1 trillion and $5.7 trillion, respectively, extending more than five years after their occurrence, casting a long shadow over the global economy.
In Conclusion
El Niño’s economic impact on Southeast Asia is undeniable, exerting its effects in both short-term and long-term economic landscapes. In addition to impacts on the agricultural sector, food security and electricity consumption, El Niño can also have indirect effects on public health. The prolonged exposure to high temperatures can result in heat-related illnesses, including heat exhaustion and heatstroke. The most vulnerable segments of the population—the elderly and individuals with pre-existing health conditions—are particularly at risk. This takes on greater significance in an aging society like Singapore.
FOR MORE INFORMATION
Access details on the effects of El Niño and other weather events in the SOA Research Institute Catastrophe and Climate report Compound Weather Extreme Events and their Impacts, as well as its Quarterly Warming Report.
For actuaries, the implications of El Niño are profound. Actuaries assess the elevated risks associated with extreme weather events like droughts, floods, and wildfires, which lead to surges in insurance claims for property damage, crop losses and health-related expenses. These risks directly affect underwriting practices and premium pricing. Moreover, as countries respond to climate challenges by investing in resilient infrastructure and advancing scientific research, the insurance industry will be innovating. New risk transfer products will likely be developed to cover emerging climate risks, and actuaries, we believe, will be key players in designing these products, ensuring they are accurately priced and supported by risk models.
As climate change intensifies El Niño events, actuaries will, we believe, need to enhance predictive modeling and refine risk management strategies to account for the increasing frequency and severity of these phenomena. Climate-related risks are becoming an essential element of actuarial practice, making the role of actuaries even more pivotal in managing the financial consequences of extreme weather events.
Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.
Copyright © 2025 by the Society of Actuaries, Chicago, Illinois.