Defence spending has grown at its fastest rate in more than 15 years, as governments respond to greater perceived threats.
The world’s total military spending is forecast to hit $2.18tn (£1.77tn), with defence budgets rising by 8.6 per cent in nominal terms, or 5.1 per cent real terms, according to research provider Janes. This compares with an average annual real growth rate of 0.7 per cent over the past decade.
In percentage terms, the biggest increases were in Eastern Europe (up 36.1 per cent) and the Russia/CIS grouping (up 28.8 per cent), following Russia’s invasion of Ukraine in February last year.
Budgets in Western Europe were up by around 5.3 per cent year on year to $289bn, but this equated to just 1.3 per cent when adjusted for inflation.
Andrew MacDonald, manager of Janes Defence Budgets, said: “After five years of slowing growth and contraction exacerbated by the pandemic – and then by its easing – Russia’s invasion of Ukraine has shocked defence budgets back into their fastest rate of growth since the global financial crisis."
The US remained the biggest global spender by some distance. Its budget has increased by 4.6 per cent to $849bn. (See chart)
UBS analysts expect ex-US defence budgets to increase by 7 per cent between 2022-30, more than doubling the 3 per cent rate witnessed between 2014-21.
Higher spending has been driven by security concerns in Eastern Europe and the South China Sea. If tensions escalated further, ex-US budgets could grow by 9.5 per cent a year, similar to cold war era levels, the bank’s analysts said in a note.
In Europe, it expected BAE Systems (BA) and Dassault Aviation (FR:AM) to be the two main beneficiaries, arguing their current valuations appeared to be “priced solely for already announced orders”.
