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Thursday, March 23, 2023

Fitch: Possible recession in the Eurozone in the event of a sudden shutdown of Russian gas

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“The exposure is so great that an immediate and total shutdown of Russian gas supplies will result in gas shortages and restrictions, which will cause a major economic shock,” he said. p>

According to the house, the EU relies on net imports to cover 84% of domestic gas consumption, with 38% of gas imports coming from Russia. The house estimates that about 30% of domestic gas consumption in the EU and the Eurozone is provided by Russia, while the corresponding percentage in Germany is 60%.

The house uses European Central Bank analyzes based on a framework for analyzing the inflows and outflows of national accounts, analyzes that estimate that the GDP of the Eurozone will shrink by 0.7% if gas supplies are reduced by 10%.

“A 30% loss in gas supply translates into a 2% contraction in Eurozone GDP,” Fitch said, adding that for Germany, a loss in Russian gas supply would mean a 4% drop in GDP. >

Although there is room for long-term replacement of Russian gas supplies with other gas and energy sources, Fitch stresses that “an immediate loss of gas imports from Russia, a significant risk as the war in Ukraine continues, would be virtually impossible. “In addition, rising energy prices in such a scenario would add to inflationary pressures and squeeze out real income,” he added.

In its March 2022 financial outlook, Fitch forecasts a 2.3% growth rate in 2023 with downside risks, noting that potential gas cuts are likely to push the eurozone into recession in late 2022 and early 2023.

Source: KYPE

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