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The report analyses household vulnerabilities by examining credit markets, external prices (food and fuel), and income shocks during the crisis and by assessing their impact on household welfare. Because actual household survey data over the crisis period will typically not be available for some time to come, we use the most recent pre-crisis household data along with aggregate macroeconomic outturns to simulate the impact on households of key economic shocks already taking place. The impact on household well-being is quantified as the change in the household debt service burden, the fall in real income, or movements into poverty, as appropriate. The microeconomic simulation in the report draws on a large, cross-country database of household surveys, bringing together for the first time comparable data on household indebtedness for a large group of European and Central Asian countries using the EU Survey of Income and Living Conditions and Household Budget Surveys.

The crisis is hitting households on multiple fronts

We analyse three main transmission channels from macro shocks through to households: access to financial markets (including the cost of borrowing and the burden of debt service payments), the relative prices of goods and services, and, income and employment. Our focus on these mechanisms reflects lessons from analysing the social effects of crises over the last three decades as well as data availability constraints. However, we do ignore several important elements such as wealth effects associated with changing values of property and equity holdings (including pensions), the second-round effects of the crisis and the combined consequences of multiple shocks. The role of government policy and social assistance is also not addressed explicitly in the quantitative analysis. Government policy can, in fact, either dampen the impact of shocks or worsen them, depending on how such policies are formulated and implemented.