Gas supply shock would cut value of Europe’s economy, ECB says

FRANKFURT, Germany – A negative shock from any gas supply disruption would eat into the value of goods and services produced in the eurozone, the European Central Bank (ECB) said on Tuesday, February 15, worsening the impact of high energy prices on the bloc’s growth.

Record energy prices in response to concern a Russian attack on Ukraine will lead to disruption of fuel exports to Europe have dented eurozone growth. Russia denies any plan to invade.

In an Economic Bulletin article on Tuesday, the ECB said it expected high energy prices would reduce eurozone economic output by around 0.2% this year, compared with baseline levels of gross domestic product, with the biggest impact in the first quarter.

Over 90% of the gas used in the eurozone is imported, the ECB said, meaning negative economic impacts would be aggravated if the bloc loses some of its gas supply.

“The direct and indirect impact of a hypothetical 10% gas rationing shock on the corporate sector is estimated to reduce euro area gross value added by about 0.7%,” the bank said.

The actual fall could even be greater as the modeling does not consider the effect of energy price changes, the ECB said.

Austria and Slovakia would take the biggest hit, the ECB said, while among industrial sectors, basic metals would likely suffer the most. – Rappler.com