BIG PICTURE

Defence budgets are growing after a few years of decline, as threats in Europe and the Middle East force countries to meet the demand for more gear

Defence budgets are growing after slumping for a few years.

War, what is it good for? The idealistic answer is absolutely nothing, which sounds great in a protest song. Realists, however, know war is always good for defence spending. Not long ago, the people in charge of the so-called military industrial complex were fretting about cuts to Western defence budgets. Indeed, McKinsey polled 20 executives from leading aerospace and defence companies in late 2012 and 19 of them expected industry spending to steadily shrink over the next three years. Some predicted a market decline of more than 20%. At the time, NATO members were responsible for more than half of the 20 fastest-declining defence budgets, and the rest of the world wasn’t expected to pick up the slack. Enter Russia, China, India, Saudi Arabia and Oman. Driven by substantial increases in defence spending by these nations, the combined total of national defence expenditures is set to rise this year for the first time in half a decade.

Global military spending is projected to hit at least US$1.547 trillion in 2014, according to the IHS Jane’s Annual Defence Budgets Review, up from US$1.538 trillion last year, when four of the five fastest-growing markets were in the Middle East and Russia overtook the United Kingdom to become the third-largest military spender behind the United States and China. Uncle Sam, of course, still leads the world by a long shot when it comes to actual dollars spent on defence. IHS says Washington spent US$582 billion on defence last year, about US$375 billion more than China ( US$139 billion) and Russia ( US$69 billion) combined.

Military spending as a percentage of GDPpaints a different picture. According to the World Bank, which excludes civil defence spending and expenditures for previous military activities (such as veteran benefits, demobilization, conversion and destruction of weapons), the U.S. spent 3.8% of its GDP on defence last year, down from 4.2% in 2012. That’s less than Russia ( 4.2%), not to mention Yemen ( 3.9%).

But military budgets have a nasty habit of fluctuating with demand, which is why U.S. spending has ranged from less than 1% of GDP in 1929 to more than 40% in 1944. According to IHS analyst Fenella McGerty, current events haven’t yet changed “the negative short-term outlook for defence budgets among the larger NATOpowers.” As a result, combined alliance expenditures are still expected to fall to US$829 billion in 2016, down from current spending of US$869 billion. The Obama Administration, meanwhile, would like to allocate just 2.3% of GDPto security spending by 2024.

As noted in July by Dinah Walker, an analyst with the Council on Foreign Relations, a further decline in the U.S.’ s share of global military spending “seems likely in the absence of a new sense of insecurity.” Since then, of course, Washington and its allies have launched new military actions in the Middle East, where the threat from Islamist insurgents has been seriously underestimated. Enough said.

Source: IHS Jane’s Annual Defence Budgets Review