European Union nations are staring at the possibility of recession as a reduction in Russian gas supplies will severely cripple their economies. According to the International Monetary Fund (IMF), a total shutdown of Russian gas supplies will lead to as much as a 6 percent drop in GDP of the vulnerable EU countries.
“The prospect of an unprecedented total shutoff is fuelling concern about gas shortages, still higher prices, and economic impacts. While policymakers are moving swiftly, they lack a blueprint to manage and minimise impact,” IMF said.
Nord Stream 1 Pipeline Closing
While Hungary, Slovakia and the Czech Republic will be the hardest hit, the impact will be severe for Italy, Germany and Austria as well.
There is speculation that Russia will keep the Nord Stream 1 pipeline closed for routine annual maintenance. If this happens, Europe will be caught off guard, without a dependable plan to manage the challenge.
“Our work shows that in some of the most-affected countries in central and eastern Europe, there is a risk of shortages of as much as 40% of gas consumption and of gross domestic product shrinking by up to 6%,” the IMF blogpost said.
According to the IMF, the impact can be managed by securing alternative supplies and energy sources. Easing of infrastructure bottlenecks and encouraging energy savings also will help.
The IMF says that a total shutdown of Russian gas will result in the EU economic growth dropping nearly 3 percent over the next 12 months. There are some countries that will suffer little or no impact on growth. These include Sweden, Denmark and Greece. But countries like Italy will suffer as they have high reliance on gas in electricity production, according to the IMF.
“The effects on Austria and Germany would be less severe but still significant, depending on the availability of alternative sources and the ability to lower household gas consumption,” the fund said, according to The Guardian.