Is the world economy moving towards a wartime state?

The global economy is increasingly showing signs of moving toward a wartime state, driven by escalating geopolitical tensions, unprecedented rises in military spending, and economic policies shaped by conflict and uncertainty. This trend is evident across multiple dimensions, including surging defense budgets, trade disruptions, and the prioritization of military needs over civilian economic stability in several regions.

Global Military Spending at Record Levels

A defining characteristic of a wartime economy is the significant allocation of resources to military purposes, often at the expense of other sectors. In 2024, global military expenditure reached an all-time high of $2.718 trillion, marking a 9.4% increase from 2023 and the steepest year-on-year rise since the end of the Cold War12. This surge was observed across all world regions, with the United States alone spending $997 billion (37% of the global total), followed by China at $314 billion (12%), and Russia at $149 billion (5.5%)2. The global military burden, measured as a share of GDP, rose to 2.5% in 2024, reflecting a broader trend of governments prioritizing defense over other budgetary needs1. In conflict-affected countries like Ukraine, military spending as a percentage of GDP reached 34%, while Israel and Russia allocated 8.8% and 7.1%, respectively2. This redirection of resources mirrors historical wartime economies where national budgets are heavily skewed toward defense3.

Geopolitical Tensions and Economic Fragmentation

Geopolitical conflicts are fueling economic policies that resemble wartime strategies, such as trade wars and economic isolation. The 2025 trade war initiated by the United States, with tariff increases targeting major partners like China, Canada, and Mexico, has the potential to become the largest in history, disrupting global supply chains and driving up costs4. Effective tariff rates are at levels not seen in a century, contributing to financial market volatility and a sharp rise in the Economic Policy Uncertainty Index to its highest level this century56. Additionally, ongoing conflicts such as the Russia-Ukraine war and the Israel-Hamas conflict have exacerbated energy and food insecurity, pushing inflation higher and straining global economic stability7. The World Economic Forum’s 2025 Global Risks Report identifies conflict as the greatest danger facing the world, with 23% of surveyed leaders ranking state-based armed conflict as the top risk, up from eighth place the previous year89. These tensions are fragmenting the global economy, reminiscent of Cold War-era bifurcation, where economic and security priorities are increasingly aligned with military objectives3.

National Economies Under Strain from War Priorities

Several key economies are exhibiting wartime characteristics as they prioritize military needs over civilian welfare. In Russia, a "two-speed economy" has emerged, with the military-industrial complex receiving substantial budget allocations (nearly 40% of total spending in 2024) while the civilian sector faces inflation rates of 9.6% (or up to 16-21% by unofficial estimates), labor shortages, and declining growth10. Ukraine’s economy is similarly strained, with state-funded war-related expenditures rising 67% from January to February 2025 and total war spending up 62% year-on-year in the first quarter, amidst challenges like energy infrastructure damage and labor market disruptions due to migration and mobilization11. Even in non-combatant nations like Canada, increased defense spending (targeted to rise from 1.4% to 2% of GDP by 2030) is being framed as an industrial policy to boost domestic manufacturing and reduce reliance on imports, echoing wartime economic strategies of self-sufficiency12.

Economic Slowdown Amidst Militarization

The global economic outlook is deteriorating, with growth projected to slow to 2.3% in 2025, below the 2.5% threshold often associated with a recessionary phase6. This slowdown is compounded by trade policy shocks, financial turbulence, and systemic uncertainty, particularly affecting developing countries6. The International Monetary Fund notes that global growth forecasts have been revised downward due to escalating trade tensions and policy shifts, with downside risks intensifying5. Meanwhile, militarization is diverting resources from productive economic activities, as seen in Europe where defense spending has risen to 1.3% of GDP in 2023 and further in 2024, with mixed economic impacts—some short-term stimulus through demand but potential long-term crowding out of private investment13. This mirrors wartime economies where immediate military needs often lead to broader economic slumps, as highlighted by reports of recessionary trends in the UK, Japan, and 11 EU countries in 202314.

Conclusion

While not all countries are directly engaged in conflict, the world economy is increasingly adopting characteristics of a wartime state. Record-high military spending, economic policies driven by geopolitical rivalries, and the prioritization of defense over civilian needs in key regions signal a shift toward militarized economic frameworks. Coupled with a slowing global economy and rising uncertainty, these trends suggest that the world is navigating a critical juncture where wartime priorities are reshaping economic realities on a global scale.

1. https://www.sipri.org/media/press-release/2025/unprecedented-rise-global-military-expenditure-european-and-middle-east-spending-surges
2. https://factodata.com/global-military-spending-by-country/
3. https://dsm.forecastinternational.com/2025/06/13/a-new-era-of-global-defense-spending-key-trends-and-whats-ahead/
4. https://cepr.org/voxeu/columns/2025-trade-war-dynamic-impacts-across-us-states-and-global-economy
5. https://www.imf.org/en/Publications/WEO/Issues/2025/04/22/world-economic-outlook-april-2025
6. https://unctad.org/publication/trade-and-development-foresights-2025-under-pressure-uncertainty-reshapes-global
7. https://www.spglobal.com/en/research-insights/market-insights/geopolitical-risk
8. https://www.weforum.org/stories/2025/01/global-risks-report-conflict-global-cooperation/
9. https://www.weforum.org/publications/global-risks-report-2025/in-full/global-risks-2025-a-world-of-growing-divisions-c943fe3ba0/
10. https://www.wilsoncenter.org/blog-post/risks-russias-two-speed-economy-2025
11. https://ces.org.ua/en/tracker-economy-during-the-war/
12. https://www.desjardins.com/en/savings-investment/economic-studies/canada-economy-defence-spending-21-march-2025.html
13. https://economy-finance.ec.europa.eu/economic-forecast-and-surveys/economic-forecasts/spring-2025-economic-forecast-moderate-growth-amid-global-economic-uncertainty/economic-impact-higher-defence-spending_en
14. https://www.wsws.org/en/articles/2024/02/19/qhfu-f19.html
15. https://www.worldbank.org/en/publication/global-economic-prospects
16. https://www.un.org/development/desa/dpad/publication/world-economic-situation-and-prospects-june-2025-briefing-no-190/
17. https://www.sipri.org/sites/default/files/2025-04/2504_fs_milex_2024.pdf
18. https://www.iiss.org/publications/the-military-balance/2025/defence-spending-and-procurement-trends/