They said the prospect of an unprecedented total shutdown is fueling concerns about gas shortages, further higher prices and the economic impact. “While policymakers are moving quickly, they lack a plan to manage and minimize the impact.”
Amidst the effects of the conflict between Russia and Ukraine and the subsequent war, senior IMF officials assess the effects in two ways.
“One is the integrated market approach, which assumes that gas will get where it is needed and prices will adjust. The other is the fragmented market approach, which is best used when gas cannot get where it is needed, no matter how much the price rises. However, the estimate is complicated by the fact that the blow to the European economy is already happening,” they wrote.
“When considering a full Russian gas shutdown from mid-July, we focus on the impact relative to a baseline of no supply disruptions this year. This simplifies the estimate and makes it comparable to other economic research,” they added.
If physical constraints prevent gas flows, the fragmented market approach suggests that the negative impact on economic output would be particularly significant, up to 6 percent in some CEE countries with high intensity of Russian gas use and alternative supplies. Especially in Hungary, the Slovak Republic and the Czech Republic. Italy would also have significant impacts as it is heavily dependent on gas for electricity generation.
The effects on Austria and Germany would be milder, but still significant, depending on the availability of alternative sources and the possibility of reducing household gas consumption. The economic impact would be moderate, possibly less than 1 percent in other countries with adequate access to international LNG markets.
Responding to challenges
A study by the International Monetary Fund (IMF) shows that the economic harm caused by Russia’s gas blockade can be partially mitigated. In addition to the measures already taken, further actions should focus on mitigating risks and crisis preparedness.
“The government must step up efforts to secure supplies from the global LNG market and from alternative sources, continue to ease gas import and distribution infrastructure bottlenecks, plan for emergency supply sharing across the EU, act decisively to promote energy savings while protecting vulnerable households, and prepare smart gas regulation programs,” IMF officials said.
They added that Europe now has a moment to build on the decisive action and solidarity it showed during the pandemic to meet the challenging moment it faces today.
Source: ANI