IMF says conflicts cause large, persistent output losses

The International Monetary Fund (IMF) said Wednesday that armed conflicts cause large and persistent output losses in economies where fighting takes place, while creating significant spillover effects for other countries.

In its analytical chapters from its upcoming World Economic Outlook, the Fund said the number of conflicts has recently risen to levels not seen since World War II.

Beyond their devastating human toll, conflicts have deep macroeconomic consequences, said the IMF, noting that output in the average conflict-hit economy drops sharply at the onset of war and records cumulative losses of about 7% over five years. It added that the damage can still persist a decade later and often exceeds losses linked to financial crises or severe natural disasters.

The report said post-conflict recoveries are generally slow and uneven, and depend heavily on whether peace is sustained. Where peace holds, output recovers, but gains tend to remain modest compared with wartime losses.

In a separate chapter on defense spending, the IMF said about half of all countries have increased military budgets in the last five years, while arms sales by the world's largest defense firms have doubled in real terms over two decades. It said large defense spending booms have become more frequent, especially in emerging markets and developing economies.

The IMF added that the buildups can support short-term economic activity, but also temporarily raise inflation and worsen medium-term fiscal conditions.

On average, fiscal deficits deteriorate by about 2.6 percentage points of GDP and public debt rises by around 7 percentage points within three years, it added.