IMF: Hungary is in the biggest crisis due to the Russian gas shutdown

According to a recent analysis by the International Monetary Fund (IMF), Hungary is in the biggest crisis due to the Russian gas shutdown. As Hungarian and German economies are most exposed to the Russian gas supply, they suffer the most, if it stops.

As napi.hu reports, the GDP decline in Hungary could be as much as 6.3 percent. “Our work shows that in some of the most affected countries in Central and Eastern Europe—Hungary, the Slovak Republic and the Czech Republic—there is a risk of shortages of as much as 40 percent of gas consumption and of gross domestic product shrinking by up to 6 percent,” writes IMF.

Read alsoGas shortage in Hungary – who will lose supply?

Hungarian economy threatened

IMF measured the impacts in two ways. If we examine the integrated-market approach, it suggests that the direct impact so far could have represented a 0.2 percent decrease in the economic activity of the European Union in the first half of 2022. On the other hand, a complete shutdown of the Russian gas supply is possible from mid-July. In that case, there can be a wide range of impact estimates for the next 12 months. If physical barriers impede the flow of gas, the negative impact on economic performance would be particularly significant. It might be 6 percent for some Central and Eastern European countries. In these countries, the proportion of Russian gas consumption is high and there are very few alternative supplies. In particular, the situation may be critical in Hungary, Slovakia and the Czech Republic. However, it would also significantly affect Italy as it relies heavily on gas for electricity generation.

Hungary is the most exposed to Russian gas supplies

According to data examined by the IMF, Hungary is the most exposed to Russian gas supplies. This is because Gazprom provides more than 90 percent of the gas imports of Hungary. Now, the Hungarian government led by Viktor Orbán is planning to reduce consumption. According to the cabinet’s announcement, customers will only be supported at reduced utility prices up to average consumption. They expect that in the case of consumption above the specified limit, the higher prices will encourage customers to save.