For these and other reasons, the actual impact will surely be far greater.Īnother IMF paper suggests that, with uncertainty added, Germany’s GDP could be 1.5 per cent below baseline in 2022, 2.7 per cent in 2023 and 0.4 per cent in 2024.
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The estimated fall of 0.4 per cent also ignores demand-side effects and assumes full integration of global markets. Without the latter, the decline would be between 1.4 and 2.5 per cent.īut the former, while far better for Europe, would also mean higher prices elsewhere, especially in Asia. The paper concludes that a Russian shut-off would lead to a decline in EU gross national expenditure of only about 0.4 per cent a year after the shock, once one takes the global LNG market into account. European integration within global LNG markets is imperfect, but substantial.Įuropean integration within global LNG markets is imperfect, but substantial. Putin will lose if Europe can only hold on.Ī recent paper from the IMF points to the potential role of the global liquefied natural gas market in cushioning the shock to Europe. In the long run, Europe can dispense with Russian gas. But work by IMF staff shows that substantial adjustment is feasible, even in the short run. As the Financial Times′ Chris Giles wrote last month: “There is virtually no way to escape a Europe-wide recession, but it need be neither deep nor prolonged.” The likelihood of a recession has probably risen further since then. Yet this combination of large losses in real incomes with less than fully accommodative monetary policy means that a recession is inevitable.ĭifficult though the future looks, there is also hope. The experience of the 1970s indicates that the best response is to keep inflation firmly under control, as the Bundesbank then did, rather than allow desperate attempts to prevent the inevitable reductions in real incomes to turn into a continuing wage-price spiral. It is inevitable, too, that sharply rising energy prices will lead to high inflation. Moreover, this ignores the disruption to industrial activity and the impact of soaring energy prices on poorer households. These losses are bigger than either of the two oil shocks of the 1970s. Capital Economics argues that at today’s prices, the worsening of the terms of trade would amount to as much as 5.3 per cent of Italy’s gross domestic product over a year and 3.3 per cent of Germany’s. This is not to underestimate the challenge.
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Yet Europe can and must free itself from Russia’s chokehold. BloombergĮnergy is a vital front in his war.
An IMF paper suggests that Germany’s GDP could be 1.5 per cent below baseline in 2022, 2.7 per cent in 2023 and 0.4 per cent in 2024. Pipelines and storage tanks in Hamburg, with wind turbines in the background. But Vladimir Putin has assaulted the principles on which postwar Europe was built. Whether Monnet’s optimistic perspective prevails, we do not know. “Europe will be forged in crisis and will be the sum of the solutions adopted for those crises.” These words from the memoirs of Jean Monnet, one of the architects of European integration, echo today, as Russia closes its main gas pipeline.
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