A Global Economy Uneasy with Geopolitical Risk
— More Than Defense:　The Importance of Tension‑Reduction Efforts

■ The World Economy Under the Shadow of War
The IMF has recently released its World Economic Outlook (WEO), bearing the subtitle “Global Economy in the Shadow of War.” The international community appears to be entering a phase defined by heightened geopolitical risk and growing uncertainty. The latest WEO captures this increasingly fragile backdrop confronting the global economy with particular clarity.
What merits close attention is the report’s explicit focus on defense and conflict as subjects of macroeconomic analysis. Chapter 2 examines the macroeconomic effects of defense spending, while Chapter 3 analyzes the economics of conflict and postwar reconstruction. It is unusual for the IMF to address these themes so systematically, and this in itself underscores how deeply today’s geopolitical tensions are shaping the global economic outlook.
According to WEO, while defense buildups can boost economic activity in the short term, they also temporarily increase inflation and create significant medium-term challenges. The report also finds that the fiscal multiplier for defense spending averages around one, and varies widely depending on how spending is sustained, financed, and allocated and how much equipment is imported.
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. Recoveries remain modest relative to wartime losses. In other words, the familiar argument that “reconstruction demand fuels growth” finds little support from a macroeconomic perspective.

■ War Does Not Pay—Even in Economic Terms
The policy implication of these findings is straightforward. Beyond the humanitarian costs, war is also an irrational choice from an economic standpoint. Yet current realities point in the opposite direction. The number of armed conflicts worldwide has reached its highest level since the end of World War II, and the global economy is gradually drifting toward what could be described as a wartime footing.
As the United States steps back from its role as the world’s primary security guarantor and international institutions lose some of their coordinating capacity, the risk of geopolitical tensions materializing across regions cannot be dismissed. Ensuring global economic stability and sustained growth will therefore require the rebuilding of institutional frameworks capable of preventing new international confrontations. Japan, while carefully managing its alliance with the United States, is expected to play a proactive role in reviving international cooperation and contributing to the formation of a new global order.

■ Linking Defense Buildup to “Growth Without War”
That said, it is also true that rising international tensions make some degree of defense strengthening unavoidable. Recent studies, including the WEO, suggest that the economic impact of higher defense spending is greater when such spending goes beyond simple weapons procurement and contributes to domestic supply capacity through research, development, and technological innovation.
Japan’s longstanding position—framing defense spending primarily as a means of deterrence and conflict prevention—should remain unchanged. At the same time, technologies developed in the defense sector should be adapted for civilian use wherever possible, thereby channeling them toward peaceful applications and longer-term economic growth.
As defense budgets continue to expand across countries and the risk of regional conflicts rises, there is a real danger that the peace and prosperity achieved over the past 80 years—and the economic growth underpinned by the so-called “peace dividend”—could be undermined. To avert such an outcome, nations must persist not only in strengthening their defense capabilities, but also in sustained diplomatic efforts aimed at easing tensions and rebuilding mutual trust.

Refference

International Monetary Fund, “Chapter 2: Defense Spending: Macroeconomic Consequences and Trade-Offs” “Chapter 3: The Macroeconomics of Conflicts and Recovery” , Word Economic Outlook, April 2026
https://www.imf.org/en/publications/weo/issues/2026/04/14/world-economic-outlook-april-2026?cid=ca-com-homepage-sm26-WEOEA2026001

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