Date: Monday, 21 May 2018
By Dr Lucie Béraud-Sudreau, Research Fellow for Defence Economics and Procurement
Date: 21 May 2018
After significant real-terms defence-spending reductions in Europe and the United States following the 2008 financial and economic crisis, a recovery has only partially revived defence-spending levels, fuelled in part by a plethora of regional security crises. The data for the past decade also suggests some lasting global shifts in defence-spending patterns.
This analysis stems from the full defence-economic data sets for 2008–17 now available in the IISS Military Balance+ database, along with 2018 data for almost all of the 171 countries covered by The Military Balance 2018. Exceptions to this analysis are particularly non-transparent countries in the Middle East (Qatar, United Arab Emirates), Asia (Laos, North Korea, Vietnam) and Eurasia (Kyrgyzstan, Turkmenistan, Uzbekistan), and for countries in conflict such as Libya and Syria. Nevertheless, this ten-year data set makes it possible to better chart the consequences of the 2008 financial and economic crisis for defence spending. It shows that, from this economic crisis lowering defence budgets, the world has moved into a period in which a multiplicity of security crises is, in contrast, driving global military expenditures upwards.
This scenario has been particularly the case in Europe where, between 2009 and 2015, defence spending decreased in real-terms each year. For North America, dominated by the United States, the effects of the financial crisis were delayed until 2011. By then, the Obama administration was coming under strong pressure to reduce the budget deficits that had partly resulted from the financial crisis. Drawdowns from Afghanistan and Iraq also contributed to reductions in US defence spending. In 2011 the Budget Control Act (BCA) was passed by US Congress to end a debt-ceiling crisis. The BCA implemented cuts to parts of the US defence budget, resulting in year-on-year defence-spending reductions between 2011 and 2016 (see Figure 1).
This situation meant that the engines of growth in military expenditure between 2008 and 2017 were in non-Western parts of the globe. The Middle East was the region with the strongest growth rate, at 7.2%, followed by Asia at 4.3%. While sub-Saharan Africa experienced 3.9% growth over the ten-year period, it has slowed in recent years.
https://cloud.highcharts.com/embed/SysqI7J0f/
In consequence, Asia overtook Europe in defence spending. The gap amounts to US$85.3 billion (in 2010 prices), and in effect looks unbridgeable (see Figure 1). Asia’s share of global defence spending rose from 17% in 2008 to 24% in 2017 (see Figure 2), while Europe declined from a 22% share in 2008 to 18% in 2017 and North America declined from 46% to 36%. In the same time period, the Middle East’s share also increased (7% to 12%).
https://cloud.highcharts.com/embed/Hy2cAWyAf/
https://cloud.highcharts.com/embed/Hy4YI4JAG/
However, the data for the period 2017–18 reveals changes to these trends. As explained at the launch of The Military Balance 2018, economic indicators now point to a renewed growth in global military expenditure, particularly in the West. Many European states, including the top spenders, have announced plans to increase their defence budgets in the coming years. In the US, the Trump administration and the US Congress have agreed to significantly increase defence spending in 2018 and 2019. Indeed, defence budgets will grow by 6% in real-terms in the US in 2018, by 3.3% in France and 2.5% in Germany (see Figure 3).
https://cloud.highcharts.com/embed/rkR-OX1Az/
The improved economic setting has allowed for this renewed prioritisation of defence spending. But it has been the rising uncertainty in international relations and multiplication of crises that have provided arguments for Western governments to increase this type of expenditure.
In contrast, key spenders in other areas of the world, who had been the drivers of global defence-spending rises, have now slowed their spending, primarily due to economic factors. There is no sign at the moment that growth will pick up the pace in the short-term. Saudi Arabia announced a 13.4% reduction in its 2018 defence budget, although in recent years the Kingdom has revised its actual spending upwards at the end of the financial year. In Russia, the lower energy-price environment, in conjunction with economic sanctions following the annexation of Crimea in 2014, has taken its toll on the economy and on the rouble. Despite increases in nominal terms, Russia’s 2018 defence budget should see a 2% decline in real-terms. And although the defence budget in China keeps increasing, it is at a slower pace than during the past few years, in line with the country’s slower economic growth (see Figure 4).
https://cloud.highcharts.com/embed/HklunXkRM/
This scenario might not signal a complete reversal in the global defence-spending trends, as military outlays, like national wealth, are being redistributed across regions of the globe. Nonetheless, this analysis indicates that, after a period of focusing on other priorities, Western powers are now willing to spend more on defence, in the context of an improved economic climate but degraded security prospects.
