The Economic Impacts on Germany of a Potential Russian Gas Shutoff

July 19, 2022

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Format: Chicago

Ting Lan, Galen Sher, and Jing Zhou. The Economic Impacts on Germany of a Potential Russian Gas Shutoff, (USA: International Monetary Fund, 2022) accessed November 8, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We analyze the potential impacts on the German economy of a complete and permanent shutoff of the remaining Russian natural gas supplies to Europe, accounting for the curtailment of flows through Nord Stream 1 that has already taken place. We find that such a scenario could lead to gas shortages of 9 percent of national consumption in the second half of 2022, 10 percent in 2023 and 4 percent in 2024, which would be worse in the winter months, and would likely fall on firms, given legal protections on households. We combine the effects of less gas on production with the consequent effects of reduced supply of intermediate goods and services to downstream firms, and with reduced economic activity due to rising uncertainty. Together, these three channels reduce German GDP relative to baseline levels by about 1.5 percent in 2022, 2.7 percent in 2023 and 0.4 percent in 2024, with no gains in subsequent years from deferred economic activity. The associated rise in wholesale gas prices could increase inflation by about 2 percentage points on average in 2022 and 2023. Our simulations suggest that the economic impacts can be reduced significantly by having households voluntarily share a small part of the burden, and by rationing gas supplies more to more gas-intensive and downstream firms. We also suggest other ways to enhance German energy security.

Subject: Consumption, Energy prices, Energy pricing, Expenditure, Financial regulation and supervision, Fuel prices, Inflation, National accounts, Operational risk, Prices

Keywords: Asia and Pacific, Consumption, Embargo, Energy inflation Passthrough, Energy prices, Energy pricing, Energy security, Energy supply, Europe, Fragmentation, Fuel prices, Gas consumption, Gas shock, Gas shortage scenario, Gas supplies, Gas usage requirement, GDP impact, Impacts of gas shortage, Inflation, Natural gas, Operational risk, Production function, Rationing

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2022/144
Stock No:

WPIEA2022144
ISBN:

9798400215285
ISSN:

1018-5941

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