Recession inevitable in Europe? What IMF says on Russian gas shutdown to EU countries

A total shutdown of Russian gas supply would reduce GDP in the most vulnerable EU countries by as much as 6 per cent and send them plunging into recession, the International Monetary Fund has warned, media reports said.

Amid speculation that Russian President Vladimir Putin will keep the Nord Stream 1 pipeline closed when routine annual maintenance ends later this week, the IMF said Europe lacked a comprehensive plan to cope with shortages, further increases in energy prices and the impact on growth, The Guardian reported.

The Washington-based fund identified Hungary, Slovakia and the Czech Republic as the three EU countries likely to suffer most, but said that Italy, Germany and Austria would also suffer significant effects, the report said.

"The prospect of an unprecedented total shutoff is fuelling concern about gas shortages, still higher prices, and economic impacts. While policymakers are moving swiftly, they lack a blueprint to manage and minimise impact," IMF officials said.

"Our work shows that in some of the most-affected countries in central and eastern Europe, there is a risk of shortages of as much as 40 per cent of gas consumption and of gross domestic product shrinking by up to 6 per cent.

"The impacts, however, could be mitigated by securing alternative supplies and energy sources, easing infrastructure bottlenecks, encouraging energy savings while protecting vulnerable households, and expanding solidarity agreements to share gas across countries."

The IMF said Europe's energy infrastructure and global supply had coped so far with a 60 per cent drop in Russian gas deliveries since June last year, but underlined the potential costs should the Kremlin respond to Western sanctions by "weaponising" energy supplies, The Guardian reported.

Russia's invasion of Ukraine has already led the fund to cut its growth forecast for the global economy to 3.6 per cent this year, and it will announce a further downgrade later this month.