Conflict creates an economic shock that can persist long after fighting begins or ends. The available evidence covers lost output, weaker consumption and trade, military spending, forced displacement, and spillovers into neighboring economies. Together, these measures show why conflict economies cannot be assessed by military expenditure alone.
Contents
- Output losses and recovery
- Consumption, trade, and productive capacity
- Global military spending and fiscal burden
- Military budgets in conflict-linked economies
- Displacement and economic scale
- Regional and cross-border spillovers
Output losses and recovery
The economic cost of conflict accumulates over time. In the World Bank’s analysis of conflict episodes from 2006–2023, average per-capita GDP losses reached about 13% five years after conflict onset. High-intensity conflicts were associated with losses exceeding 20% over the same five-year horizon. The median cumulative per-capita GDP loss was almost 20% for high-intensity conflicts, compared with about 9% for medium-intensity conflicts. These are estimates across conflict episodes, not a forecast for every country.
The growth path also changes. From 2006–2020, median per-capita GDP growth fell about 2.7 percentage points after a medium-intensity conflict and nearly 4.5 percentage points after a high-intensity conflict. Recovery after the fighting is uneven: three years after a medium-intensity conflict, median per-capita GDP growth was about 1.3 percentage points above the pre-conflict average. After a high-intensity conflict, it remained nearly 1 percentage point below the pre-conflict rate.
The World Bank reported that the West Bank and Gaza economy contracted 27% in 2024 amid conflict. Its 2025 report also presented counterfactual estimates that, without conflict, per-capita GDP could have been at least twice as high in the Central African Republic, South Sudan, and Syria. Those country comparisons are counterfactual estimates, while the 2024 contraction is a measured annual change.
The scale of the long-term damage is visible in the same source’s broader estimates. GDP per capita was about 28% lower ten years after conflict onset in the IMF study discussed below, while the World Bank’s conflict sample found that output losses can remain evident well into the post-conflict period. The relevant comparison is always between a conflict-affected path and an estimated or modeled alternative, rather than a simple before-and-after count.
Sources: World Bank, Global Economic Prospects — June 2025; IMF, The Macroeconomic Costs of Conflict.
Consumption, trade, and productive capacity
Conflict reduces household demand and disrupts the channels through which firms obtain inputs and sell products. In conflict episodes examined by the IMF, private consumption was about 25% lower ten years after onset. Official exports were estimated to be 58% lower, and official imports 34% lower, after the same ten-year period. These estimates describe the long-run difference associated with conflict episodes; they are not annual percentage changes.
The labor-market effects are especially important in fragile and conflict-affected economies. The employment-to-working-age-population ratio fell from just under 60% to below 55% between 2000 and 2022. Over that period, the working-age population grew by 270 million, while employment grew by 140 million. The gap indicates how demographic growth can outpace the creation of work when productive capacity and institutions are under pressure.
Agriculture accounts for just over 20% of output and about 40% of employment in fragile and conflict-affected economies, according to the World Bank’s 2025 report. Damage to transport, farms, markets, and financing therefore affects both national output and household livelihoods. Access to credit is also constrained: median private-sector credit relative to GDP in fragile and conflict-affected economies was about one-third the level in other emerging-market and developing economies during 2020–2023.
The IMF’s sample, reported in 2020, found that countries currently involved in conflict accounted for about 1.6% of global GDP. That small global share does not make the local effect small: it means the largest losses are concentrated among economies with limited buffers, weaker financial access, and high dependence on sectors exposed to physical disruption.
Sources: IMF, The Macroeconomic Costs of Conflict; World Bank, Global Economic Prospects — June 2025.
Global military spending and fiscal burden
Military expenditure reached $2.718 trillion worldwide in 2024, according to SIPRI. Global military expenditure rose 9.4% in real terms from 2023 to 2024 and was 37% higher than in 2015. SIPRI reports these percentage changes at constant 2023 prices, so they measure real changes rather than changes caused only by inflation. Military spending equaled 2.5% of global GDP in 2024, while average military expenditure equaled 7.1% of government expenditure worldwide. The global total was $334 per person.
Regional totals show where the increase was concentrated.
| Region or group | 2024 military expenditure | Change or share |
|---|---|---|
| Europe, including Russia | $693 billion | Up 17% |
| Middle East | $243 billion | Up 15% from 2023 |
| Africa | $52.1 billion | Up 3.0% from 2023 |
| NATO members | $1.506 trillion | 55% of global spending |
The regional figures use SIPRI’s 2024 estimates and its stated geographic groupings. NATO’s $1.506 trillion represented 55% of global military expenditure, while Europe’s total included Russia. Those definitions matter when comparing regional totals with alliance totals.
Military spending is a fiscal indicator, not a complete measure of the economic cost of conflict. It captures public resources directed toward defense, but it does not by itself measure destroyed capital, lost schooling, interrupted trade, reduced labor participation, or displacement. The GDP and consumption evidence shows why the broader cost can be much larger than the defense budget.
Military budgets in conflict-linked economies
The largest national changes in 2024 were highly uneven. Russia’s military expenditure reached $149 billion, 38% above 2023, and equaled 7.1% of GDP and 19% of government spending. Ukraine’s military expenditure grew 2.9% to $64.7 billion, while its military burden reached 34% of GDP. The Ukrainian figure is therefore much larger relative to the domestic economy than the Russian figure, even though Russia’s dollar expenditure was higher.
| Economy | 2024 military expenditure | Reported burden or change |
|---|---|---|
| Russia | $149 billion | 7.1% of GDP; 19% of government spending; up 38% |
| Ukraine | $64.7 billion | 34% of GDP; up 2.9% |
| Germany | $88.5 billion | Up 28% |
| Poland | $38.0 billion | Up 31%; 4.2% of GDP |
| Israel | $46.5 billion | Up 65%; 8.8% of GDP |
| Iran | $7.9 billion | Down 10% in real terms |
| Myanmar | $5.0 billion | Up 66% |
Germany’s military expenditure rose 28% to $88.5 billion. Poland’s grew 31% to $38.0 billion, equal to 4.2% of GDP. Israel’s expenditure surged 65% to $46.5 billion, with the military burden rising to 8.8% of GDP. Iran’s spending fell 10% in real terms to $7.9 billion, while Myanmar’s surged 66% to $5.0 billion.
These figures are not interchangeable measures of national welfare. A dollar total reflects the scale of spending; a GDP share reflects the burden relative to the economy; and a government-spending share indicates competition for public resources. SIPRI’s changes are real changes at constant 2023 prices.
Displacement and economic scale
Forced movement is both a humanitarian consequence and an economic shock. UNHCR estimated that 123.2 million people were forcibly displaced worldwide at the end of 2024. That was an increase of 7 million people, or 6%, from 2023, and equaled one in every 67 people worldwide. The total had nearly doubled over the decade ending in 2024.
UNHCR later estimated 122.1 million forcibly displaced people by the end of April 2025, 1% below the end-2024 figure. The two measurements are from different dates, so they should not be treated as a full-year trend or as evidence that displacement had structurally reversed.
The distribution of displacement also affects where economic pressures are felt. About 73% of refugees were hosted by low- and middle-income countries at the end of 2024. Sudanese displacement reached 14.3 million people at the end of 2024, 3.5 million more than a year earlier, and represented nearly one-third of Sudan’s population.
Internal movement was similarly large. At the end of 2024, 73.5 million people remained internally displaced because of conflict or violence, up 9% year over year. More than 20.1 million new internal displacements were reported for those reasons during 2024. These totals follow UNHCR’s published population definitions and include different forms of displacement; they should not be added together without accounting for those definitions.
Source: UNHCR, Global Trends 2024.
Regional and cross-border spillovers
Conflict losses extend beyond the territory where fighting occurs. In post-World War II conflicts, average output at the conflict site fell about 3% at onset and reached a cumulative loss of about 7% within five years. Output losses in the average conflict-site economy persisted even after ten years. These estimates describe average conflict-site outcomes across the studied historical sample.
Third countries generally experience smaller but measurable effects. During the first two years after a major conflict begins, third-country output losses were about 1% or less. In the Middle East and Central Asia, real GDP per capita was about 2% lower one year after severe conflict began and remained about 10% lower a decade after onset, based on conflicts from 1989–2022.
Countries elsewhere typically lost about 2% of real GDP per capita after the first year of severe conflict and largely recovered after the fifth year. The contrast with the Middle East and Central Asia illustrates how geography, trade links, refugee movements, energy exposure, and regional instability can change the duration of spillovers. The reported figures are sample-based estimates, not universal outcomes for every neighboring country.
Sources: IMF, Chapter 3: The Macroeconomics of Conflicts and Recovery; IMF, “Scars of Conflict Are Deeper and Longer Lasting in Middle East and Central Asia”.
The figures above use different conflict definitions, samples, measurement dates, and population concepts. SIPRI’s percentage changes are real changes at constant 2023 prices, while UNHCR totals follow its published definitions. Comparisons are strongest when the geography, time horizon, and denominator—GDP, government spending, population, or employment—are kept explicit.