2018 Global defense spending to hit post-Cold War high of $1.67 trillion

Iran slightly outspends Israel, both dwarfed by Saudi Arabia

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December 19, 2017 10:38
3 minute read.
Merkava tanks

Israeli army Merkava tanks churn up dust as they race towards targets during a live-fire exercise. (photo credit: REUTERS)

 
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The annual Jane’s Defense Budgets Report released on Monday is forecasting that global defense spending will increase again in 2018 to hit a post-Cold War record of $1.67 trillion.

The Jane’s Report was released by global information analyzer and distributor IHS Markit.

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According to Jane’s Report, defense spending will grow for the fifth consecutive year, overtaking the previous post-Cold War record of $1.63 trillion from 2010.

Defense spending will increase by 3.3% in 2018 – the fastest rate of growth for a decade – driven by the largest annual increase in US spending since 2008. US defense spending jumped from $636.2b. in 2016 to $642.9b. in 2017.

“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 for Jane’s by IHS Markit. “However, defense spending remains lower in relation to GDP than at any time in the last 10 years.”

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

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



“President Trump and his administration sought large increases” to address “fixing readiness and training issues that are largely the result of sequestration cuts,” said Guy Eastman, senior analyst for Jane’s by IHS Markit. “Investment will also increase in targeted areas such as ballistic missile defense, shipbuilding, missiles and munitions, space-based systems, and C4ISR [Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance] systems.”

In the Middle East, defense spending began to increase again this year, following a reduction in 2016. Crucially, Saudi Arabia – the largest defense spender in the region – increased its defense budget in 2017 after cutting spending the previous year.

“Fiscal consolidation is still occurring… following the collapse in oil prices; however, the challenging security environment has seen defense budgets protected from cuts in most cases,” according to Craig Caffrey another analyst for Jane’s by IHS Markit.

Israel’s defense spending grew from $14.2b. in 2016 to $15b. in 2017, maintaining its ranking of 17th in defense spending worldwide for both years. Iran jumped from $13.7b. to $16.3b., moving from 18th to 15th place. Saudi Arabia far outspends both countries at $50.9b. this year.

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. Western Europe’s spending was cut between 2009 and 2015, but has been increasing slowly since then.

“Defense spending growth in Western Europe will largely be driven [by trying to stabilize] government balance sheets; the perceived threat from Russia on NATO’s eastern border;” and some other issues, McGerty said. He added that German coalition negotiations and Brexit negotiations would also impact the picture.

Eastern Europe will be the fastest growing region in the world in 2018, as several countries try to increase defense spending to 2% of GDP. “Growth has taken off in Eastern Europe since Russia’s intervention in Ukraine in 2014,” McGerty said.

In the Asia-Pacific region, which had grown robustly over the last decade, spending slowed this year to its lowest rate since 2010 due to smaller increases in China and India and cuts to spending in South-East Asia. After the US, China and India are the second and third ranked countries in defense spending, with China a far second at $192.5b. compared to the US $642.9b.

The Jane’s Annual Defense Budgets Report tracks 99% of global defense expenditures from 105 of the world’s largest defense budgets.

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