A total shutdown of Russian gas supply would reduce the GDP of the most vulnerable EU countries by up to 6% and cause them to fall into recession, the International Monetary Fund has warned.
Amid speculation that Russian President Vladimir Putin will keep the Nord Stream 1 pipeline closed when routine annual maintenance ends later this week, the IMF said Europe does not have a comprehensive plan to deal with the shortages, further increases in energy prices and the impact on growth. .
The Washington-based fund identified Hungary, Slovakia and the Czech Republic as the three EU countries most likely to suffer, but said Italy, Germany and Austria would also suffer significant effects.
“The prospect of an unprecedented total shutdown is fueling concern over gas shortages, even higher prices and economic impacts. While policymakers are moving fast, they have no plan to manage and minimize the impact, ”IMF officials said in a blog post.
“Our work shows that in some of the most affected countries in Central and Eastern Europe, there is a risk of shortages of up to 40% of gas consumption and that the gross domestic product will be reduced by up to 6% .
“The impacts, however, could be mitigated by guaranteeing alternative energy supplies and sources, alleviating bottlenecks in infrastructure, promoting energy savings while protecting vulnerable households and expanding solidarity agreements to share gas between countries”.
The IMF said Europe’s energy infrastructure and global supply had so far faced a 60% drop in Russian gas deliveries since June last year, but stressed the potential costs if the Kremlin responded to Western sanctions by “arming” the energy supply.
Russia’s invasion of Ukraine has already led the fund to reduce its forecast for world economy growth to 3.6% this year, and will announce a further downturn later this month.
Total gas consumption during the first three months of 2022 fell by 9% over the previous year, and alternative supplies were being taken advantage of, especially liquefied natural gas (LNG) from global markets.
“Our work suggests that a reduction of up to 70% in Russian gas could be managed in the short term by accessing alternative energy supplies and sources and taking into account the reduction in demand from previously high prices,” he said. ‘IMF.
“However, diversification would be much more difficult in a total closure. Bottlenecks could reduce the ability to redirect gas within Europe due to insufficient import capacity or transmission limitations.”
Sign up for the Daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk
The IMF said that in the event of a total closure, the EU could suffer a drop in economic output of almost 3% over the next 12 months. Some countries, such as Sweden, Denmark and Greece, would see little or no impact on growth, but Italy, due to its high dependence on gas in electricity production, could suffer an impact of more than 5%.
“The effects on Austria and Germany would be less severe but still significant, depending on the availability of alternative sources and the ability to reduce household gas consumption,” the fund said.
The IMF bloc said EU governments should push for efforts to secure supply for global LNG markets and alternative sources, tackle bottlenecks in infrastructure to import and distribute gas, have a strategy for sharing supplies in the event of an emergency, encourage energy savings while protecting vulnerable households, and prepare. ”smart gas rationing programs.