Less than 1% drop in Luxembourg GDP in case of Russian gas shortage: IMF – Delano.lu

Written by Benoît Theunissen
Published on 21.07.2022
If Russia were to close its gas supply, there would be a risk of a downturn in the European economy. Luxembourg is less exposed than several other EU member states, according to the International Monetary Fund.  Photo: Shutterstock
The International Monetary Fund has calculated the impact of Russian gas shortages for each EU member state. Luxembourg is among the European countries least exposed to a decline in growth.
Europe is concerned that gas supplies from Russia may not resume on Thursday 21 July, as planned, via Nord Stream 1. More than a third of Russia’s gas exports to Europe pass through this pipeline. And even if supplies were to resume, policymakers are considering plans to cut off supplies between now and next winter.
On Wednesday, the European Commission presented its energy saving plan and called on member states to reduce their gas consumption by 15% from August.
After the political concerns, it is now the turn of economic decision-makers to express fears. They are concerned that they may no longer be able to keep their businesses running at full capacity. This risk is also reflected in the downwardly revised economic forecasts for the second half of this year. This does not take into account the impact of rationing on the inflation rate.
However, not all member states are exposed to the risk of Russian gas shortages to the same extent. Research by International Monetary Fund staff shows that Central European countries such as Hungary, the Czech Republic and Slovakia face a risk of Russian gas shortages of up to 40% of their consumption. Such a scenario would be punished by a drop in GDP of up to 6%, according to the IMF.
For Luxembourg, the decline in growth should not exceed 1% of GDP, the IMF calculated, in the worst case scenario. In 2020, Luxembourg’s dependence on Russian gas varied between 5% and 10% of the country’s total gas consumption.
In a speech to MPs on Wednesday 19 July, minister for the environment and energy, Claude Turmes, indicated that gas consumption by residential customers would probably be guaranteed. But as a precautionary measure, they will be asked to make efforts to reduce their consumption in order to preserve the activities of companies. Like private customers, gas supplies for sensitive customers such as hospitals and care homes will also be protected.
In view of the level of exposure of certain member states, Turmes also referred to the principle of international solidarity. Even if Luxembourg is better off than other countries such as Germany, he noted that the economy is interdependent and that, de facto, solidarity should come into play. The IMF has calculated that the German economy could shrink by almost 3% in the event of a serious shortage of Russian gas.
The IMF indicated that a reduction in Russian gas consumption of up to 70% could be managed in the short term. To do this, the international financial institution stressed the urgency of accessing alternative sources of supply, such as liquefied natural gas.
UPDATED: Nord Stream 1 gas flows restarted on Thursday morning, with the pipeline handling about 30% of its normal capacity at 6am, EUobserver reported. Flows are expected to reach 40% of capacity later on Thursday, according to Bloomberg and Reuters.
Originally published in French by Paperjam and translated for Delano

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