IMPLICATIONS FROM A RUSSIAN GAS CUT-OFF FOR THE EURO AREA

1. A full cut-off from Russian gas would cause gas rationing in early-2023, triggering a recession in the euro area. Only if overall gas consumption of households and firms can be reduced; and concerted action among EU members will help mitigate adverse effects of a cut-off of Russian gas.
2. Two of the largest euro area economies, Germany, and Italy, remain the most vulnerable.
3. A full cut-off from Russian gas supply as of September 2022 would exhaust gas reserves by end-2022. Some countries will be hit more severely than others, in particular Austria, Belgium, Germany, and Italy. Rationing of gas used by firms would therefore be required at the beginning of 2023, causing gas consumption in Germany, for example, to fall about 40% below the level expected without rationing.
4. Energy intensive sectors would have to scale down production, thereby reducing euro area GDP by 1.7% eventually leading to higher unemployment. Two of the largest economies in the euro area would be hit strongly: GDP in Germany and Italy would fall by about 2.5% in 2023. In some countries gas rationing is not expected to happen. However, these countries would nevertheless be adversely affected via trade relationships, like supply chains. France and Spain.
5. The European Commission encourages countries to reduce gas demand by 15% between 1 August 2022 and 31 March 2023. In the industrial sector, this could take the form of replacing gas with other energy sources where possible. For households and public administrations or owners of public buildings, this would mainly imply reducing gas use for heating purposes. A reduction in gas consumption could help to keep the energy intensive sectors operational as it implies a reallocation of available gas reserves. Rationing would become less severe, and firms would need to scale down their production by less, thereby stabilising employment.
6. A full gas import stop from Russia may well be very likely, making gas a scarce resource in the forthcoming winter. Consequently, either production will have to be scaled down, causing unemployment to rise, or persistent gas savings will be needed to help mitigate the impact on manufacturing industry once a gas import stop happens.

Effective use of Europe-wide gas reserves in solidarity among EU Member States could be another tool to cushion the blow from a gas shortage, leveraging on countries that have not exhausted their reserves to aid those in need.

Overall exposure

High

1. Germany
2. Italy
3. Austria
4. Belgium

Medium

1. Greece

Low

1. Denmark
2. Ireland
3. Spain
4. France
5. Cyprus
6. Luxembourg
7. Malta
8. Netherlands
9. Portugal
10. Finland
11. Sweden