Experience from past wars suggests that Ukraine will lose around $120 billion in economic output by 2026 and at the same time the Ukrainian capital stock will fall by almost $1 trillion. Third countries not involved in the war are expected to record GDP losses of around $250 billion, $70 billion of which in the European Union alone.
Wars often cause immense economic damage. In theaters of war, the capital stock is destroyed - that is, economic assets such as machines or buildings. At the same time, economic output collapses by an average of around 30 percent and inflation rises by around 15 percentage points over five years.
But third countries that are not involved in the war also bear high costs, especially the neighboring countries of the immediate theater of war: Real GDP here falls by an average of 10 percent after five years, while inflation rises by 5 percentage points. Wars have significant negative externalities on neighbors. However, the effects can be positive for countries further away: there are winners and losers from wars in the global economy too. These results are based on a new analysis by researchers at the IfW Kiel and the University of Tübingen, which are published in the Kiel Policy Brief “The Price of War” ( https://www.ifw-kiel.de/de/publikationen/die-kosten-des-krieges-32528/?ADMCMD_simTime=1707886800 ) and methodically in the Kiel Working Paper of the same name (Federle et al., 2024). is well-founded.
Part of the publications is an online tool with which hypothetical scenarios can be estimated ad hoc under the assumptions made (Price of War Calculator, PCALC, see below).
Take Ukraine, for example – that’s what the war could cost until 2026
Based on past wars, the authors estimate that the Russian invasion will result in a GDP loss in Ukraine of about $120 billion by 2026 and a decline in Ukraine's capital stock by more than $950 billion.
At the same time, the economic burden on third countries not involved in the war is also significant, totaling around 250 billion US dollars. Of this, around 70 billion US dollars go to countries in the European Union and around 15-20 billion US dollars to Germany alone.
“The calculations are based on the costs of 'typical' interstate wars in the past. Depending on the duration and intensity of the war, less or more serious scenarios are conceivable,” says Jonathan Federle, researcher at IfW Kiel and author of the study. “The spillover effects we calculate to other countries primarily take into account the trade links caused by geographical proximity and the size of the respective economy in which a war breaks out.”
Examples of Taiwan and Iran – different intensity of trade integration
If an economy is highly integrated globally, such as in Taiwan, the estimates tend to represent the lower end of the expected economic war costs; in this case, the researchers expect global GDP losses of around 2.2 trillion US dollars within five years .
For example, if Iran were to become the scene of a war, the cost in lost GDP to the global economy could be as high as $1.7 trillion over five years. Iran is not as heavily involved in world trade due to sanctions, so the external costs estimated by the researchers in this case are probably at the upper end. Moritz Schularick, President of the IfW Kiel and co-author of the study, summarizes the central insights . “The Russian attack on Ukraine has caused enormous economic damage in Ukraine, but also in neighboring countries and in Germany. Overall, the calculations show once again how high the economic value of peace is and how catastrophic a war on one's own soil is in every respect. Military strength and credible deterrence, which make external attacks unlikely, also make sense from an economic perspective.”
For the Kiel Policy Brief “The Price of War”: https://www.ifw-kiel.de/de/publikationen/die-kosten-des-krieges-32528/?ADMCMD_simTime=1707886800
Price of War Calculator – PCALC
The online Price of War Calculator (PCALC) tool is freely accessible at https://priceofwar.org/ . It makes it possible to estimate the economic impact of a war on the theater of war as well as the economic spillover effects to other countries. The tool is based on the study presented in “The Price of War” (Federle et al., 2024) and thus condenses the historical experiences of the last 150 years. New or hypothetical war scenarios may differ from historical averages in various respects, therefore the calculations can only be considered an estimate.