European energy customers would face high costs to boost energy savings, says IMF

  • European governments should only consider targeted efforts to help households facing soaring energy costs, the IMF said.
  • The costs of oil and natural gas and other energy sources have increased following Russia’s invasion of Ukraine.
  • Broad-based financial support “delays the necessary adjustment to the energy shock,” the institution said.

European households are facing soaring energy costs, but regional governments should only protect the most financially vulnerable to boost energy savings, the International Monetary Fund has said.

Countries like Germany, Spain and France have various aid packages in place to help residents cope with high energy costs which rose dramatically after Ukraine was invaded in late February. by the major Russian oil producer. World oil prices have doubled, coal prices have nearly quadrupled and European natural gas prices have risen nearly sevenfold since the start of last year, the IMF said in a blog post published on Wednesday.

“Policy,” however, “should shift from generalized support such as price controls to targeted relief such as transfers to low-income households who suffer most from higher energy bills,” the institution said. based in Washington.

“Removing the retail price pass-through simply delays the necessary adjustment to the energy shock by reducing the incentives for households and businesses to save energy and improve efficiency. This keeps global demand and prices energy higher than they otherwise would be.”

The average European household will see the cost of living rise by around 7% this year compared to what the IMF forecast at the start of 2021, reflecting the direct effect of rising energy prices as well as their pass-through on other goods and services.

Governments providing financial cushions to households are reducing the limited fiscal space in their economies, and in many countries the cost will exceed 1.5% of economic output this year, largely due to sweeping tax cuts. price.

Fully offsetting increases in the cost of living for the poorest 20% of households would cost governments 0.4% of average gross domestic product for 2022, the IMF said, adding it would cost 0.9% of GDP to fully compensate the bottom 40%.

“Some governments are also supporting businesses. This is only appropriate if a short-lived price spike would bankrupt otherwise viable businesses,” the IMF said.

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