A report from the International Monetary Fund indicated that Europe, thanks to accumulated fuel reserves, will be able to withstand the upcoming winter, but it risks facing record prices for natural gas and electricity once again. The IMF noted that by mid-September 2022, Russian gas supplies to Europe had dropped by 80% in annual value, with exports completely halted to Bulgaria, Denmark, Finland, Germany, Lithuania, the Netherlands, and Poland.
At the same time, the fund's experts base their core forecasts on the idea that enough reserves for the winter have been accumulated, but they also allow for an emergency scenario of a combination of unusually cold weather with a complete cutoff of gas supplies from Russia. In such a case, according to their estimates, Europeans would need to seek ways to reduce fuel consumption by 6%, which could lead to a loss of about 3% of GDP for the most vulnerable countries compared to baseline forecasts.
The report states: "However, even if the accumulated reserves of natural gas allow Europe to withstand the winter of 2022-2023, in the spring the region will try to replenish supplies. With modest or completely absent Russian supplies, this could lead to a return of the market in 2023 to record-high prices for natural gas and electricity, as seen in 2022."
It was also reported that rising energy prices are expected to increase the cost of living in Europe by 7% and 9% in 2022 and 2023, respectively. The IMF believes inflation in advanced European economies will be 8.3% in 2022, slowing to 6.2% in 2023. The report indicated that prices in Eastern European countries, excluding those involved in conflicts and Turkey, would rise by 13.3% and 11.8% in 2022 and 2023, respectively. Western countries are facing rising energy prices and inflation due to sanctions imposed on Moscow and the policy of reducing dependence on Russian fuel. Against the backdrop of soaring fuel prices, particularly gas, the industry in Europe has largely lost its competitive advantages, which has also impacted other sectors of the economy. The United States and European countries are also facing record inflation not seen in decades.
