Europe’s Economy at Risk Without Russian Gas Supplies

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Europe’s economic growth is at risk if Russian gas supplies are not turned back on after the current planned maintenance to the Nord Stream pipeline is completed. Paul Hannon reports for The Wall Street Journal:

Europe’s economies showed resilience in May but remain vulnerable and could suffer a steep downturn should Russia stop supplying natural gas to the region.

Economic data released Wednesday showed output at factories across the eurozone jumped in May, while the U.K. economy rebounded from a contraction in April.

However, the rise in eurozone factory output was almost entirely down to U.S. businesses that operate in Ireland, while U.K. growth was partly driven by the lifting of two years of restricted access to local health services.

Both the U.K. and eurozone economies grew in the first three months of the year, in contrast with the U.S., which experienced a contraction. However, the surge in home energy prices that followed Russia’s invasion of Ukraine has significantly slowed the recovery from the pandemic, as households cut back on other goods and services.

“It’s barely enough to pay the bills,” said Arthur Hodson, a sports instructor from Liverpool, northwestern England. “The main things you have to pay for are a roof over your head, gas, water and food. Everything after that is a luxury.”

Figures released by the European Union’s statistics agency Wednesday showed industrial output was 0.8% higher in May than in April. However, output fell in France, Italy and Spain and was only slightly higher in Germany. By contrast, Irish output surged 13.9%, driven by a rise in output from U.S. factories based in the country, which accounts for 5.1% of the eurozone’s total industrial production.

Without Ireland, eurozone output was stagnant. Economists expect that stagnation would quickly turn to decline if Russia’s supplies of natural gas to Europe weren’t to resume after scheduled maintenance that shut down the Nord Stream pipeline on Monday. Germany’s central bank estimates that a halt to supplies that required some rationing would lead to a 3.25% drop in economic activity in the eurozone’s largest economy from the third quarter of this year through the second quarter of 2023.

Some other estimates see a larger cost depending on the scale of the shortfall for factories. In a recent joint study, Germany’s leading economic institutes forecast a decline of as much as 9.9% or as little as 1.6% depending on the extent of the hypothetical gas shortfall.