Economic Premise POVERTY REDUCTION AND ECONOMIC MANAGEMENT NETWORK ( PREM ) THE WORLD BANK The Crisis Hits Home : Stress-Testing Households in Europe and Central Asia

During the recovery period following the 1998 Russian crisis, some 50 million people moved out of poverty in the economies of Eastern and Central Europe, the former Soviet Union, and Turkey (the economies that make up the World Bank’s Europe and Central Asia Region).2 Poverty fell throughout all the subregions of Europe and Central Asia, led by the populous, middle-income countries of the Commonwealth of Independent States (CIS). Such a massive reduction in poverty was driven by rising incomes everywhere, particularly through rising real wages among the working poor. The global financial crisis, which has led to a sharp slowdown in regional economic activity, now risks reversing the substantial gains and improvements achieved in living standards over the last few years. Countries are facing a number of major and interrelated economic shocks. The first shock is the global slowdown leading to lower export revenues. Furthermore, to low-income countries such as Moldova and Tajikistan, remittance inflows have fallen. Meanwhile, the crisis drastically reduced the availability, and increased the cost, of external finance across public, corporate, and financial sectors. Finally, as commodity prices fell, commodityexporting countries suffered. All in all, the crisis threatens the well-being of close to 40 million people who are still poor. It also threatens the welfare of an additional 120 million people who are living just above the poverty line and are at risk of easily falling into poverty as economies contract.