Growing Security Fears Boost Defence Budgets

Estimated reading time: 6 minutes

“Rising tensions in Asia Pacific have seen a long overdue process of military modernization move up the political agenda in a number of countries,” said Craig Caffrey, principal analyst at IHS. “The Philippines, Indonesia, Japan and Vietnam are all following China’s lead and we see no sign of this trend coming to an end.” By 2020, total regional spending is expected to reach $533 billion annually from $435 billion in 2015.

Chinese defence spending makes up about 40 percent of all defence spending in the Asia Pacific region. Between 2010 and 2015, China’s defence budget increased by around 43 percent in real terms, from roughly $134 billion to $191 billion. Despite a slowdown in China’s economy, the country’s defence budget is expected to grow further to $255 billion by 2020.

Despite a decade of cuts, Japan remains one of the world’s largest spenders, with a defence budget of roughly $49 billion in 2015. Since 2012 increased emphasis on defence under the Abe administration has seen core spending return to growth. However, in reality, core expenditure remains flat and has declined as a share of state spending and GDP.

Regional conflict and modernisation efforts spur growth in Eastern Europe and Baltics

After a turbulent five years, defence spending is set to soar in Eastern Europe as countries move towards spending 2 percent of GDP on defence. “Driven by the crisis in the Ukraine and Poland’s modernisation programme, Eastern Europe is now the fastest growing region globally,” McGerty said. “This position has been held by the Middle East for the last three years.”

Defence spending growth in the region averaged 13 percent in 2015, up from 4 percent in 2014, according to the IHS report. Notably, Ukraine’s defence budget increased by 70 percent in the past year as Kiev responded to unrest in the east of the country. Meanwhile Lithuania, Poland, Slovakia and Latvia also enacted double-digit real terms increases.

“The regional surge in defence spending is particularly notable in the North-East,” McGerty said. “We saw remarkable growth of 20 percent in the Baltics in 2015 and this is expected to continue in 2016.”

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