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Defense Spending Increased Despite Economic Contraction

Defense Spending Increased Despite Economic Contraction

Despite the coronavirus outbreak and the subsequent 3.5% contraction in global economic output in 2020, global defense spending was resilient, with real growth matched by the higher rate achieved in 2019. However, even with a potential increase in European spending, this increase could slow in 2021. While the defense budget of the United States is improving and growth in the Asia-Pacific is slowing.

Global defense spending reached US $ 1.83 trillion in 2020, up 3.9% annually in real terms. As a proportion of GDP, global spending is set to 2.08% in 2020, from an average of 1.85% in 2019, while military budgets are maintained, despite the severe economic contractions caused by the coronavirus epidemic and a series of global lockdowns in response to it. rose to. Global defense spending growth has strengthened since 2018, but may slow in 2021 as the US defense budget flattens and Asia-Pacific spending is expected to slow. The increase in US and Chinese defense budgets accounted for almost two-thirds of the total increase in global spending in 2020: the US defense budget increased 6.3% in real terms in 2020, while China’s growth slowed to 5.2% in 2020. 5.9% in 2019.

Urgent adjustments in Asia, but growth continues

Beyond China, wider regional spending growth has slowed in 2020 as countries such as Thailand, South Korea and Indonesia make immediate downstream adjustments to their defense budgets to fund emergency relief efforts in response to the outbreak. In most cases, planned growth was reduced rather than actual reductions in previous year’s allocations. The slowdown in both China and the wider region means that defense spending growth in Asia slowed from 4.6% in 2019 to 4.3% in 2020. Despite this, the share of the region in total global defense spending reached 25.0% compared to 17.8 in 2020. % In 2010 and 23.2% in 2015.

This will likely increase in 2021, despite rising spending in Europe, but modestly. This is because the approved FY21 US defense budget remains nominally constant compared to FY20 levels, and China’s budget is expected to continue to grow, albeit at a slower rate, as its economy is not subject to contractions seen in developed markets. In the long run, the region’s relatively effective handling of the outbreak puts it on a stronger economic footing globally and allows for continued increases in defense spending.

Middle East defense spending still stands

In line with the weak performance of oil prices, defense spending in the Middle East and North Africa contracted for the third time in a row in 2020 to US $ 150 billion (excluding security spending) and its share in global defense spending to 8.9%. despite devoting 5.2% of its major economic output to defense compared to 2.08% of its GDP. Other oil-dependent economies are also beginning to show signs of tension. After managing a significant 3.8% real increase in the core “national defense” budget for 2020, Russia was only able to achieve a negligible 1.4% increase for 2021, which is 3.6% in real terms. means downtime. Total Russian military spending (including pensions, military housing, and health and social support) is expected to fall below 3.8% of GDP in 2023, from over 4.1% of GDP in 2020.

European defense spending continues to rise despite financial pressure

Total European defense spending grew by 2.0% in real terms in 2020. This was more modest than the 4.1% increase seen in 2019, and Europe’s share of global defense spending dropped from 17.8% in 2019 to 17.5%. However, average spending among European NATO members has steadily increased as a proportion of GDP over the past six years; It jumped from 1.25% of GDP in 2014 to 1.52% in 2019 and 1.64% of GDP in 2020.

NATO’s recommendation that its members should aim to spend 2% of GDP on defense, despite the significant economic contraction of 7.0% expected in 2020. When it comes to defense equipment spending, NATO’s European members retained the higher defense spending investment they achieved in 2019, on average 23% in 2020, beyond the 20% recommended by NATO.

Moreover, the commitment of key European defense markets – France, Germany, Italy and the United Kingdom – to continue to increase their defense budgets in 2021 and beyond points to the intention to avoid harsh cuts implemented after the 2007-08 fiscal period. crisis. The UK announced in November 2020 that £ 16.5 billion (US $ 21.1 billion) will be added to the defense agreement during 2021-25. Meanwhile, France and Germany maintained their current military financial plans for 2021 after enacting major investment programs to support indigenous defense industries in 2020. If these spending plans continue in its current trajectory, in 2021 Europe could be the region with the fastest growth in global defense spending.

Whether this commitment continues beyond 2021 will depend on the final economic cost of the pandemic and the inevitable financial measures governments must implement when the crisis is over – itself dependent on effective crisis management and a successful vaccination program across the region.

Defense Spending Increased Despite Economic Contraction

Stronger short-term growth in European defense spending will not offset a slowdown in Asian defense spending growth and a flattened US defense budget. Therefore, the momentum in defense budget growth will likely slow down in 2021. As the pandemic evolves and governments react to financial pressures caused by the comprehensive economic aid programs that come into effect in 2020 and continue until 2021, defense budgets could begin to shrink from 2022 – 23.