IMF Warns Armed Conflicts Trigger Major Economic Losses, Global Spillovers
In its analytical chapters from the upcoming World Economic Outlook, the Fund noted that the number of conflicts has recently climbed to levels not seen since World War II.
Beyond the human toll, conflicts carry major macroeconomic consequences. The IMF highlighted that output in the average conflict-affected economy falls sharply at the start of hostilities and accumulates losses of roughly 7% over five years. The Fund added that the impact can persist even a decade later and often exceeds the damage caused by financial crises or severe natural disasters.
Post-conflict recovery is typically slow and uneven, the report said, heavily dependent on the durability of peace. Where stability is maintained, output eventually rebounds, but the gains usually remain modest compared with the wartime losses.
In a separate discussion on defense spending, the IMF noted that roughly half of all countries have increased military budgets over the past five years, while arms sales by the world’s largest defense companies have doubled in real terms over the past two decades. The Fund said large-scale defense spending surges have become increasingly common, especially in emerging and developing economies.
While these buildups can boost short-term economic activity, they also tend to temporarily raise inflation and worsen medium-term fiscal conditions. On average, fiscal deficits expand by about 2.6 percentage points of GDP, and public debt rises by roughly 7 percentage points within three years.
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