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The World Economic Outlook (WEO) is a survey of prospects and policies by the IMF staff, usually published twice a year, with updates in between. It presents analyses and projections of the world economy in the near and medium term, which are integral elements of the IMF’s surveillance of economic developments and policies in its member countries and of the global economic system.
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Defense spending is rising amid intensifying geopolitical tensions. This chapter finds that large defense spending booms have become more frequent, especially in emerging market and developing economies. In a typical boom, defense outlays increase by about 2.7 percentage points of GDP over two-and-a-half years, with roughly two-thirds financed through deficit. While defense buildups can boost economic activity in the short term, they also temporarily increase inflation and create significant medium-term challenges. Fiscal deficits worsen by about 2.6 percentage points of GDP, public debt increases by about 7 percentage points within three years, and external balances deteriorate. Wartime booms are especially costly, with public debt jumping by about 14 percentage points and social spending falling. Defense spending multipliers are close to 1, on average, but vary widely depending on how spending is sustained, financed, and allocated and how much equipment is imported.
Armed conflicts generate profound macroeconomic consequences beyond their devastating human toll. This chapter leverages global data on post–World War II conflicts to assess the economic implications of wars. The analysis shows that conflicts generate large and persistent output losses in economies where fighting occurs—exceeding those from financial crises or severe natural disasters—alongside nonnegligible spillovers to other countries. These losses trigger acute macroeconomic trade-offs across monetary, fiscal, and external sectors and leave long-lasting scars. Economic recoveries are slow and uneven, depending critically on sustained peace. Even when peace holds, recoveries remain modest relative to wartime losses, led primarily by labor, while capital and productivity stay subdued. Early macroeconomic stabilization, debt restructuring, international support, and domestic reforms to rebuild institutions are essential. Comprehensive policy packages that jointly reduce uncertainty and rebuild capital stock generate positive externalities for stronger recovery.
March 2026
Finance & Development
Annual Report 2025
Regional Economic Outlooks
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Chapter 2 Data
Chapters 2 and 3 Blog
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