The global economy will suffer a hit to growth and higher inflation this year as a result of Russia’s invasion of Ukraine, the IMF. In its World Economic Outlook, the International Monetary Fund said prospects had “worsened significantly” with countries closest to the war likely to be hardest hit. But it warned that risks had intensified everywhere, raising the chances of even lower growth and more rapid price rises, and upending the fund’s view that there would be a stronger recovery from the pandemic this year.
The IMF’s forecasts showed global growth of gross domestic product this year of 3.6 per cent, down 0.8 percentage points since the fund’s January projections and 1.3 percentage points lower compared with six months ago. In 2021, global growth was estimated at 6.1 per cent, the fund said. In a simulation exercise, the IMF warned an immediate oil and gas embargo against Russia would raise inflation further, hit European and emerging economies hard and require even higher interest rates, including in the US.
Pierre-Olivier Gourinchas, the IMF’s new chief economist, stated that “the signals are aligning in the US that something needs to be done about inflation, and because the economy is strong there is room to do that without necessarily going into recession territory. The ECB is facing a situation where if it starts to address inflation, then it’s going to make the softening of aggregate demand worse. That’s never a good situation to be in as a policymaker.”
Hesitantly Financing a War Machine
EU ministers have been discussing a potential sixth round of sanctions against Russia over its invasion of Ukraine, but an embargo on oil or gas to stop financing Putin’s war machine continues to divide the bloc. Here is where a few nations stand on the issue.
Belgian Prime Minister Alexander De Croo has called for sanctions against Russia to be more severe to have an effect on the Kremlin, but has stopped short of calling for an embargo.
Relative to other major European economies, France is not heavily dependent on Russian gas and oil. Compared to Germany and Italy, which import 40 to 50 per cent of their gas from Russia, France’s share of Russian gas is only 25 per cent, with the country’s top provider being Norway (35 per cent).
France’s government has shown a willingness to ban Russian oil imports, with Finance Minister Bruno Le Maire telling CNN France “stand[s] ready to go further and decide a ban on oil.”
Germany, Europe’s biggest economy, has been one of the most hesitant to consider a total embargo on Russian energy. Chancellor Olaf Scholz has warned a sudden cut-off would plunge “all of Europe into a recession”. However, Germany’s economy minister says the country has already slashed its dependence on Russian energy since the invasion of Ukraine.
Russian oil imports have come down from 35% to 25%, and gas imports from 55% to 40%.
The Greek prime minister said on April 12 that efforts were being made to speed up gas exploration to cut reliance on Russian energy. The country gets about 40% of its energy needs from Russia.
Hungary is very dependent on Russian energy and its nationalist prime minister opposes sanctions — although he has approved the ban on coal. Viktor Orbán has vowed to veto any attempt to impose an energy embargo because, in his view, it would “kill” his country.
Ireland is free from direct Russian energy dependency. It does not import any natural gas from the country, as it has its own gas field off the coast of County Mayo. The rest — around 70 per cent — is imported from neighbouring Britain.
Thanks in part to this freedom, the Irish government has taken a firm stand against Russia, voicing its support for EU-wide sanctions.
Italy increased its reliance on Russian gas over the years as it transitioned away from coal. Italian officials say Russia supplies 38% of the natural gas used for electricity and for heavy industry, including steel and paper mills. Foreign Minister Luigi Di Maio, who has been travelling to energy-producing nations seeking alternatives, told the ANSA news agency that “Italy could not veto sanctions regarding Russian gas”. On 11 April, Italy signed a deal with Algeria to reduce its reliance on Russian fossil fuels. Algeria is currently Italy’s second-largest supplier of gas, sending 21 billion cubic metres of gas to the country. This is compared to the 30 billion cubic metres it receives from Russia.
Approximately 15 per cent of gas coming into the Netherlands is from Russia.
Dutch Prime Minister Mark Rutte claimed the Netherlands could not cut off all fossil fuel supplies from Russia, saying they “need the supply” and this was the “uncomfortable truth”.
Poland has aligned itself closely to the Baltic states by agreeing to cut all of its Russian energy imports — although, in this case, by the end of the year.
The eastern European country, which has taken in 2.5 million Ukrainian refugees (the highest in the EU) received approximately 40% of its gas supply from Russia in 2020.
Still, in a decision he described as “the most radical” in Europe, the Polish Prime Minister Mateusz Morawiecki claimed Poland would phase out coal imports in the next few months and ban oil and gas by December.
Romania and three other central-eastern European countries — Hungary, Slovakia, and Poland — have agreed a strategic partnership to further develop their hydrogen grids and reduce the need for Russian energy imports.
Slovenia is significantly dependent on Russian gas and oil imports. It recently expressed an interest in obtaining gas from an LNG (liquified natural gas) terminal in Croatia.
Last month, Slovenian Prime Minister Janez Janša stood with other EU countries in resisting Moscow’s demand that energy imports should be paid for in roubles to shore up its economy.
Since the invasion of Ukraine, Europe has looked for alternatives to Russian fossil fuels, such as shipping LGN from the US across the Atlantic Ocean. Spain has positioned itself as a possible new “hub” for importing LGN to Europe. The Spanish government has called on the EU to reduce its reliance on Russian gas. Spain, a solar power hub, is less dependent on Russia.
Sweden is more immune from the impact of energy sanctions on Moscow, as the country does not rely heavily on Russian energy imports. As reported in March by the Ministry of Agriculture, the Swedish government said the country’s “supply is to a low degree directly dependent on Russian energy supplies, and reports show that energy supplies from Russia are functioning normally.” Sweden, along with Finland, is mulling over NATO membership in light of the recent geopolitical tensions.