The latest issue of the IMF’s World Economic Outlook explores how rising geopolitical tensions are reshaping the global economy, driven by a surge in defense spending and actual conflicts. While the increase in defense spending can boost economic activity in the short term - depending on how it is sustained, financed, allocated, and on the share of imported equipment - it comes with significant trade-offs. These include higher fiscal deficits, rising debt, inflationary pressures, and risks to social spending and external balances. Conflicts, when they materialise, lead to large and persistent output losses that spill over across countries, while post-conflict recoveries tend to be slow and fragile.