Quitting Russian gas would spell recession in Europe

By James Langton | May 19, 2022 | Last updated on May 19, 2022
1 min read
Gas flaring. Torch against the sky.
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In the wake of Russia’s aggression in Ukraine, Europe would like to wean itself off Russian energy. However, going cold turkey would spark a recession in Europe, Fitch Ratings says.

In a new report, the rating agency said a sudden halt of Russian gas supplies to Europe would likely push the region into recession.

For the European Union overall, approximately 30% of gas is supplied by Russia, and for certain countries, such as Germany, the figure is much higher (around 60%).

“Exposures are so large that an immediate and total cessation of Russian natural gas supplies would result in gas shortages and rationing, causing a major macroeconomic shock,” Fitch said.

Extrapolating recent estimates from the European Central Bank (ECB), the report said the loss of almost a third of the gas supply would result in a 2% drop in GDP — and a 4% drop in Germany.

Over time, Europe should be able to find alternative sources to make up for lost Russian supplies, Fitch said.

“But an immediate loss of Russian imports — a risk that is significant and rising as the Ukraine war continues — would be virtually impossible to replace fully in the near term,” it said.

“Moreover, the surge in energy prices in such a scenario would add to inflation pressures and squeeze real incomes.”

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James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.