European economy at risk: Russia’s suspension of natural gas service to Poland and Bulgaria will have no immediate impact on the European economy, but if the cutoff spreads to other countries, Europe imposes an embargo on Russian gas, economists predict a sharp slowdown in growth and will make European economy at risk.
In this article, we will know why the European economy at risk.
Why is Russia cutting off the supply of gas?
According to Gazprom, Russia cut off gas supplies to NATO countries because Poland and Bulgaria, both EU members, refused to pay in rubles (the Russian currency).
According to the Associated Press, the Kremlin warned other countries that if they did not agree to the payment agreement, their natural gas supplies would be cut off.
Gazprom’s move comes just hours after the Polish government imposed new sanctions on the company, Russian companies, and oligarchs.
This move from Russia will result in the European economy at risk.
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Russia cuts gas supply to Poland and Bulgaria
The decision by Russia’s oil monopoly, Gazprom, to cut off gas supplies to two European Union countries this week was unlikely to immediately plunge Europe into a new recession. According to Mark Haefele, chief investment officer at UBS, in a client note, this is due in part to the fact that Europe “still has many diplomatic and fiscal policy responses available” to combat it.
What are the immediate implications for Europe’s energy supply and the global economy?
Russia’s Ukraine war is reverberating throughout Europe, slamming energy prices and harming manufacturers as the continent recovers from a pandemic-induced slump. The International Monetary Fund reduced its 2022 forecast for eurozone countries to 2.8 percent, down from 3.9 percent in January, with Germany, the largest economy, suffering the most.
On Wednesday, the euro fell below $1.06 for the first time in five years, owing to growing concerns about energy security and a slowing in European growth. The currency fell nearly 4% against the US dollar in April alone.
However, the threat of a full-fledged energy war looms at a critical juncture, including a potential European embargo on Russian gas and oil. According to analysts, European businesses are already paying more for energy, reducing profit margins and making it more difficult for people to purchase goods.
The European economy is at risk as Russia Suspends Gas Supply
For the first time in five years, the euro fell below $1.06. This was due to increased concerns about energy security and a slowdown in Europe’s economic growth.
On Wednesday, the euro fell below $1.06 for the first time in five years, owing to growing concerns about energy security and a slowing in European growth. The currency fell nearly 4% against the US dollar in April alone.
The European Union has been planning an oil embargo against Russia but did not mention it in the hours following Gazprom’s shutdown. Europe banned the import of Russian coal earlier this month. While Germany, in particular, has resisted a Russian oil or gas embargo due to the enormous cost to its industry, officials have recently reconsidered.
Nonetheless, a complete gas cutoff for Germany “would have dire consequences for the German and European economies,” he added. “Factories would have to reduce, if not stop, production.” Some key industries may be lost for good, and determining the full extent of the consequences is difficult. On the other hand, Russia is heavily reliant on revenue from energy exports as its last major lifeline. This cutoff will put the the European economy at risk.
According to Carsten Brzeski, global head of research at ING Bank, a Russian energy embargo will likely cause a European recession, and high inflation “would become even higher inflation.” This is why the European economy at risk.
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According to Germany’s top five economic research institutions, imposing a full energy embargo immediately would reduce annual economic growth in the European Union by 3% this year and next while raising inflation by about 1% in both years.
Because natural gas will almost certainly have to be rationed starting next year, parts of European industry will “then have to be switched off for four months to allow households to still heat their homes during the cold season,” according to Holger Schmieding, the chief economist at Berenberg Bank. Thus, the European economy at risk.
In the event of an immediate Russian gas cutoff, he said rationing would begin “at least conceivably” sooner. Resulting in the European economy at risk.