Andrei Rudakov Bloomberg via Getty Images Europe could be pushed into recession if gas pressure from Russia widens, economists suggest, after Gazprom cut off flows to Poland and Bulgaria. The state energy giant announced on Wednesday that gas supplies to the two Eastern European countries had been suspended after rejecting Moscow’s request to pay for gas in rubles. Gazprom said supplies would resume as soon as the payments were made, prompting accusations of “blackmail” by Bulgarian Prime Minister Kiril Petkov. As payment deadlines approach from many other European countries that are unlikely to agree to the Kremlin’s demands for a ruble payment, concerns about President Vladimir Putin’s previous threats to extend gas supplies to “unfriendly” states. in the foreground. In a research note Wednesday, Berenberg chief economist Holger Schmieding and senior economist Kallum Pickering said the shutdown appeared to be a warning from Moscow that it could meet that threat. Gas accounts for about a quarter of the European Union’s energy production, and Russia typically supplies about 40% of the bloc’s gas imports. Europe is facing simultaneous economic shocks from the war in Ukraine and a rise in food and energy prices exacerbated by the conflict, which has raised concerns about “stagnant inflation” – an environment of low economic growth and high inflation. Berenberg suggested that current headwinds are likely to maintain stagnant inflationary pressures in the second quarter of 2022. “A sudden cessation of Russian gas supplies to Europe could push Europe into recession. The exact impact of such an immediate gas embargo is difficult to predict,” Schmieding and Pickering said. “Estimates that it would reduce the level of eurozone GDP in 2023 by 3 percentage points compared to a base call … seem a little too pessimistic, in our view, but it would certainly be a major blow to activity by the end of the year. next cold season in the spring of 2023 “. However, such a move would also be costly for Russia and difficult to implement, and although a decision to halt flows to Poland and Bulgaria could strengthen the EU’s determination to end its dependence on Russian gas. , many Member States oppose a direct import embargo. While Poland has announced plans to phase out all Russian fuel imports by the end of this year, the EU plans to drastically reduce gas markets by the end of 2022, while working for a total phase-out by 2030. Therefore, Berenberg’s main assumption is that the EU will reduce gas imports as soon as possible, without risking a natural shortage, which will likely lead to the end of imports in 2024. “In such a case, energy prices would remain high, but they would probably not rise further. “Europe could gradually absorb the energy price shock, likely to return to significant growth in the summer, unless Chinese COVID-19-related lockdowns and emerging supply shortages worsen much after the second quarter.” economists. However, they noted that the cessation of Russian gas flows remains a risk that would probably force some European countries to arrange for gas supplies to certain industries in late 2022 or early 2023. Eurozone inflation soared to a record high of 7.5% in March as the war in Ukraine and subsequent sanctions against Russia pushed up energy prices. Russia’s move raises the risk of rising inflation forecasts, but Capital Economics Commodities economist Edward Gardner said on Thursday that any further rise would likely be small compared to those already seen after the Russian invasion. “Currently we forecast inflation in the eurozone of 7% and 3% this year and next year. If European gas prices rise to 150 euros per MWh and remain there, instead of falling to 75 euros by the end of next year as forecast today, metric inflation would be 0.2 percentage points higher than forecast “” said Gardner. He added that Gazprom’s announcement on Wednesday increased the risk of definitive gas shortages, which would “exacerbate the recession” that Capital Economics already predicts for the eurozone in 2022. “If Russia cut off gas exports to Germany, the government would probably cut back on gas consumption. Households would probably be protected, so industry (especially chemicals and metallurgy) would be hit harder, causing a deep recession,” he said. Gardner.
