Wars generate major and long-lasting economic losses for affected states, according to a study published Wednesday by the International Monetary Fund. The analysis, cited by Reuters, indicates that economies in conflict zones experience, on average, a drop in output of about 7 percent in the first five years, and the negative effects can stretch for more than a decade.
Russian attack in Kyiv. PHOTO Profimedia
The report, which will be included in the next edition of the World Economic Outlook, examines the macroeconomic impact of active conflicts – at the highest level since 1945 – and the sudden increases in military spending, according to the same agency, cited by Agerpres.
The International Monetary Fund study does not refer to the war in the Middle East, but analyzes historical data from 1946 to the present, as well as the evolution of military budgets in 164 countries.
According to the IMF, in 2024, more than 35 states faced conflicts on their own territory, and almost half of the world's population lived in countries affected by violence. The analysis points out that beyond the human costs, wars cause severe economic imbalances, depreciating currencies, loss of reserves and rising inflation.
The International Monetary Fund notes that states involved in external conflicts can avoid physical destruction, but neighboring economies or trading partners feel the effects strongly. Production losses persist even after ten years and usually exceed the impact of financial crises or natural disasters.
Half of the world's countries have increased their defense budgets in the last five years
Against the background of geopolitical tensions, military spending has increased considerably: about half of the world's countries have increased their defense budgets in the past five years, and the trend will continue, especially in NATO states, which aim to reach a level of 5% of GDP by 2035. Global arms sales have doubled in real terms over the past two decades.
The study also shows that episodes of accelerated growth in military spending are becoming more frequent, especially in emerging economies. They last, on average, between two and two and a half years, and defense budgets grow by about 2.7% of GDP. Two-thirds of these increases are financed by higher deficits, which may boost the economy in the short term but amplify inflation and fiscal pressures.
Budget deficits deepen by 2.6 percentage points of GDP
On average, budget deficits widen by 2.6 percentage points of GDP, and public debt increases by around 7 percentage points in the three years after these increases are triggered. A quarter of states finance the addition of military budgets by cutting other expenditures, including social programs.
The International Monetary Fund points out that import arms purchases generate lower economic effects, while domestic investments in infrastructure and equipment can strengthen industrial capacity and limit the loss of orders to foreign suppliers.
