Worldwide Defense Spending Forecast to Reach $1.67 Trillion in 2018

Estimated reading time: 5 minutes

Global defense expenditure is set to increase again in 2018 to reach its highest level since the end of the Cold War, according to the annual Jane’s Defense Budgets Report released today by IHS Markit.

According to the Jane’s report, defense spending will grow for the fifth consecutive year, reaching $1.67 trillion in 2018 and overtaking the previous post-Cold War record of $1.63 trillion seen in 2010.

Defense spending will increase by 3.3% in 2018—the fastest rate of growth for a decade—driven by the largest year-on-year increase in US spending since 2008. Funding for the procurement of military equipment is also expected to rise from $295 billion in 2017 to $315 billion in 2018, another record high in global terms.

“The increase in defense spending reflects improving economic conditions around the world, coupled with a response to continuing instability in a number of key regions,” said Fenella McGerty, principal analyst, Jane’s by IHS Markit. “However, defense spending remains lower in relation to GDP than at any time in the last 10 years, which suggests that recent growth primarily relates to improved economic and fiscal conditions in established markets.”

Over the last decade, global defense expenditure has fallen from an average level of 2.7% of GDP to 2.2%.

Key findings from the 2017 Jane’s Defense Budgets Report

US raises defense spend under Trump

The key reason for the expected acceleration in global defense spending growth is the potential 4.7% increase to the US budget planned for 2018.

With the US Department of Defense’s (DoD) budget accounting for 40% of all global defense expenditure, changes in US spending affect trends worldwide. Since the 11 September attacks in 2001, the US has spent around $10 trillion on defense.

“President Trump and his administration sought large increases in the DoD budget in his first budget. The increased funding will go toward fixing readiness and training issues that are largely the result of sequestration cuts,” said Guy Eastman, senior analyst, Jane’s by IHS Markit. “Investment will also increase in targeted areas such as Ballistic Missile Defense (BMD), shipbuilding, missiles and munitions, space-based systems, and C4ISR systems.”

More NATO members to hit spending targets

Nine NATO members will reach the 2% of GDP benchmark for defense expenditure in 2018 – the highest number hitting this goal since the financial crisis. These countries are the US, Greece, Estonia, Turkey, Latvia, the UK, Lithuania, Poland, and Romania.

Western Europe’s turnaround to growth continues

Western Europe is still emerging from a tough six-year period where defense spending was cut by 1% annually between 2009 and 2015. The trend has steadily reversed since then and regional defense spending is expected to increase by 1.3% in 2018.

“Defense spending growth in Western Europe will largely be driven stabilising government balance sheets, the perceived threat from Russia on NATO’s eastern border, and several key procurement programmes coming online,” McGerty said. “However, this growth will hinge on political developments in the region. Not least, the outcome of German coalition discussions and the bearing this will have on European defense cooperation as well the progress of Brexit negotiations and the resulting impact on the economic outlook of the UK and its trading partners.”

Eastern Europe sees fastest defense spending growth

Eastern Europe will be the fastest growing region in the world in 2018 as several countries pursue the goal to increase defense spending to 2% of GDP. Growth has been particularly spectacular among the three Baltic States. By next year, Baltic defense spending will have more than doubled in real terms compared to 2014 levels and Estonia, Latvia and Lithuania will all be spending 2% of GDP or more on defense.

“Growth has taken off in Eastern Europe since Russia’s intervention in Ukraine in 2014 with the majority of the new defense funding being put towards military modernisation,” McGerty said. “Armoured vehicle procurement is on the increase - in fact, Europe is emerging as the leading spender globally in the military ground vehicle market.”

Russian defense expenditure fell for a second consecutive year in 2017 as Moscow continued to grapple with challenging economic and fiscal conditions.

“The defense budget is now around 10% lower than its 2015 peak and is expected to be reduced by a further 5% next year. Russian military modernisation will continue but the cuts are impacting the pace of that process,” said Craig Caffrey, principal analyst, Jane’s by IHS Markit.

Page 1 of 2

• Next Page >