Russian gas flows to Europe are at a record low level as capacity from Nord Stream 1 has failed to resume fully due to additional maintenance. Gas prices in Europe have jumped again, while EU nations rushed to agree on a coordinated reduction of approximately 15% of gas demand (with country differences) to ensure sufficient gas storage before winter.
- The partial shutoff of gas deliveries is already affecting European growth momentum, adding to the other factors that are increasing uncertainty and darkening the Eurozone outlook, which is already being severely affected by a cost of living crisis.
- A scenario of pre-emptive gas and energy rationing or a scenario of more severe demand containment due to a cut-off of Russian supplies would likely imply that a recession in the Eurozone could start materialising as early as Q3. This could obviously become more intense in the case of a total cutoff, as EU industry would be severely impacted.
- To minimise the damage, EU nations should embrace a coordinated approach by finding alternative sources of energy and encouraging energy savings. This would help reduce the output losses, but would still be painful amid high inflation
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