Quitting Russian gas would spell recession in Europe

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.”

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.