‘Germany hit hard’ Eurozone recession warning as Russia threatens gas supply

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The EU is preparing for Russia to completely cut off Europe from its gas. Moscow has been heavily sanctioned after President Vladimir Putin ordered his forces to invade Ukraine, and could end its supply of natural resources to the West in retaliation. Ukraine’s President Volodymyr Zelensky, has accused Russia of conducting “gas blackmail” to try and strengthen his position in the conflict. With Russia’s threats causing concern, many economists have suggested Europe could be headed for a recession.

Martin Wolburg, senior economist at insurer Generali, told the Financial Times: “If Russia were to fully cut gas supply to the EU, a euro area recession would become the new base case with the German economy hit especially hard.”

Katharina Utermöhl, senior economist at insurer Allianz, was more optimistic: “The strong post-lockdown rebound in the sectors most impacted by the pandemic — notably travel and hospitality — should keep the eurozone economy afloat over the summer months.”

The share of Russian gas imports to the EU has already decreased from 45 percent in April 2021 to 31 percent in April 2022, with the share of pipeline gas alone falling from 40 percent last year to 26 percent this year.

Brussels set out a plan earlier this year to replace two-thirds of Russian gas imports by the end of 2022.

But some experts fear this plan is too ambitious.

Christopher Granville, managing director for EMEA and global political research at TS Lombard, said in the report that the European Commission’s aims to replace Gazprom’s gas this year look “wildly optimistic.”

A European Commission energy spokesperson told CNBC last month that Russia is using its energy supplies as an “instrument of blackmail.”

In a statement, the spokesperson said: “Following Gazprom’s earlier unilateral decision to stop delivering gas to several Member States and companies, and the below average level of its gas storage facilities in Europe over the past year, the latest moves remind us once again of the unreliability of Russia as an energy supplier.

“They also reinforce our determination to achieve our REPowerEU goals to phase out Russian fossil fuels.

“Sanctions on Russian coal and oil are coming into force this year, and with the REPowerEU Plan we will accelerate the deployment of home-grown renewables, reduce energy use and switch to alternative suppliers that are more reliable than Russia.”

According to reports the EU has already begun looking at other options.

The European Commission has proposed to EU countries a deal with Azerbaijan which would see more natural resources imported from the country.

The plan still needs approval from EU member states.

President of Azerbaijan, Ilham Aliyev, said last month that a number of European countries came to his country looking to buy gas.

He said: “In recent months, several European countries have approached us with a request to purchase gas. But it is not easy because we have to produce it first.

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“We are currently cooperating with the European Commission on that issue.”

Meanwhile, in Russia, while the country’s economy has fared better than many expected under tough sanctions, one figure has warned Moscow could still face challenges.

The head of the country’s largest lender, Sberbank, said recently the Russian economy won’t return to 2021 levels for a decade under its current economic sanctions.

Herman Gref said: “If nothing is done in the current situation, then… the return of Russia’s economy to the level of 2021 could take about 10 years.”

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