Procurement: Changing Spending Patterns

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April 18, 2016: For the fourth year a row global defense spending has been basically static. It rose about one percent in 2015 and since 2011 has increased or decreased by tiny amounts and remained somewhere between $1.7 trillion and $1.75 trillion a year. What is changing dramatically is what is being spent by nations in some regions. For example there continues to be sharp cuts in the West (especially the U.S. and Europe). Actually if you exclude the United States, defense spending went up every year since 2011. That’s because there’s an arms race going on in the Persian Gulf and East Asia even as the Americans scale back their spending.

This is all about oil-rich Arab states buying the latest and most expensive military tech in an effort to deal with increasing aggressiveness by Iran. In East Asia China is the leading spender and the neighbors, under threat by growing Chinese claims on their territory are also increasing their spending. Thus the top three spenders are now the United States, China and Saudi Arabia. It used to be United States, China, Russia, Saudi Arabia, France, Britain, Germany, Japan, India and South Korea. China, India and Japan are all increasing their already large budgets.

In the last decade the United States has cut spending about four percent (to the current $595 billion) while China’s more than doubled (to the current $214 billion). Russian spending nearly doubled (to $66 billion) after dropping sharply in the 1990s and rebounding slowly. In the meantime Saudi Arabia moved past Russia and is now spending $87 billion a year. India is spending more each year and at its current $54 billion has passed France ($51 billion) and is about to surpass Britain ($55 billion.) After more than a decade of cuts European spending went up over one percent in 2015, mainly because East European nations are spending a lot more to deal with a growing threat from Russia. Even Germany is now increasing spending to deal with the Russian threat.

A major factor in the static global spending is that by 2010 a decade of heavy defense spending, to replace a lot of the elderly Cold War era equipment was largely completed. Also ending, especially for the United States, were expensive war on terror operations in Iraq and Afghanistan. The U.S. military, especially the army and marines, used the demand for new weapons and equipment in Iraq and Afghanistan as an opportunity to replace a lot of aging Cold War gear. The air force and navy did not do as well and now, with American defense spending shrinking, there will be fewer American warplanes and warships because the money and popular support for replacing a lot of the Cold War era warships and aircraft is not there.

Most Western nations deliberately shrank their armed forces after the Cold War ended. This included China and Russia, although both of these nations are still buying a lot of modern gear. Russia does it now because it was too broke in the 1990s to buy much and the Chinese because they didn’t have a modern force at the end of the Cold War and are determined to take the lead in this area.

This recent decline in military spending is in contrast to years of growth. Since September 11, 2001, global defense spending increased nearly 50 percent, to over $1.7 trillion. That's about 2.5 percent of global GDP. After the Cold War ended in 1991, defense spending declined for a few years to under a trillion dollars a year. But by the end of the 1990s it was on the rise again. The region with the greatest growth has been the Middle East, where spending has increased over 60 percent in the last decade. The region with the lowest growth (six percent) was Western Europe. Five years of world-wide recession and the decline in spending by most Western nations has helped stall global defense spending at $1.7 trillion a year. Western defense firms are feeling this the most, as their sales have been flat from 2011 to 2014 but are now picking up.

 


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