Conflicts Are Most Detrimental to the Economy

As the International Monetary Fund downgraded its projections for global GDP growth in the face of the war in Iran, it also modeled some cautionary numbers on the effects conflicts have on economies.

Based on IMF calculations, a conflict on a country's territory will decrease its economic output by almost 3 percent on average one year after the conflict started and almost 7 percent five years on. This is more than the effects of a major natural disaster and crisis in sectors like sovereign debt, banking and currency.

By comparing historic data, the analysts also found that in a war, attacking countries which did not have a conflict on their territory still suffered some economic consequences – to the tune of 0.1 percent after one year and 1.6 percent after five years. Neighboring countries were affected at around a loss of 1.2 percent throughout, while trading partners suffered a decline of 0.6-1.2 percent depending of how long the conflict would drag on.

The analysis found that shorter conflicts were usually more intense and therefore more detrimental to economic output and that the same was true for internal conflicts, that did slightly more damage than in-between country conflict, according to the release.

The figures were calculated at a 90-percent confidence interval, meaning that the average economic cost of 2.8 percent economic output decline for a conflict territory country after one year could arguably range from around 1.8 percent to 3.8 percent.