Russia, China driving return to growth in global defense market

Global defense spending is forecast to increase 0.6% to US$1,547 billion this year, as expenditures in Russia and China help offset continuing cuts in the West. The growth is the first since 2009, following a period during which budgetary challenges prompted by the global financial crisis have seen military spending fall by 6.8% in real terms.

While the increase is a positive development for defense contractors, global spending is projected to contract again in 2015 before resuming sustained growth through 2020. US defense cuts continue to be the largest factor impacting global defense spending, with the Pentagon's budget expected to remain flat through 2018 as the US withdraws from Afghanistan and faces continuing pressure from Budget Control Act caps and sequester reductions.

Defense budgets in the five largest Western European markets (UK, France, Germany, Italy, and Spain) decreased 1.6% in 2013 and are projected to contract a further 2.4% in 2014. The UK military budget, largest of the five, is forecast to dip 7.6% between 2013 and 2016.

While Western defense budgets continue to be scaled back, Russian defense spending, forecast to grow 13.5% in real terms this year, will help fuel the return to growth in 2014. Russia has more than doubled its defense budget in nominal terms since 2007 and will have tripled since that time by 2016. Moscow has now overtaken the UK and Japan to become the third-largest spender on defense globally.

The fastest-growing region over the past two years proportionally has been the Middle East and North Africa (MENA), which is projected to grow 3.5% in real terms in 2014. Of the world's 10 fastest-growing defense budgets in 2013, six were MENA countries, which now account for 7.8% of worldwide defense expenditure, up from 5.2% in 2008.

China and India continue to drive growth in defense spending in the Asia-Pacific region, which now accounts for 24.1% of global spending, compared with 20% five years ago. That share is forecast to grow to 28.5% by 2020.

IHS analysts estimate China's 2013 defense funding at US$131.7 billion, accounting for approximately 7.8% of global military expenditures. Despite the country's slowing economy, China's official defense budget forecast calls for strong growth in the coming years, with 2014's budget nearing US$140 billion. (For an analysis of China's defense strategy see the article "The global implications of China's military modernization" in this issue of IHS Quarterly.)

India's total defense spending grew 7.1% in real terms in 2013. IHS expects its defense budget to reach US$63.7 billion by 2020, by which time it will be the fourth largest global defense market.

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