Defense expenditures escalating worldwide: Possible boost to global economic expansions?
In a notable shift, several countries have seen substantial increases in their defence budgets, according to a recent analysis by the Stockholm International Peace Research Institute and Goldman Sachs. These countries include Germany, Japan, China, India, Poland, and Estonia.
Germany, in particular, experienced a 28% increase in its defence budget, marking its biggest defence budget since reunification. This significant boost was largely driven by changes in defence policy following the Ukraine invasion. Germany's expenditure now stands at $88.5 billion.
Japan, too, has raised its military budget by 21%, reaching $55.3 billion, the largest annual increase since 1952. The increase reflects heightened regional tensions, particularly in the Asia-Pacific region.
China, the second-biggest spender, increased spending by 7% to $314 billion, the largest rise since 2015. This continues a 30-year uninterrupted growth trend in China's defence spending.
India, amid border tensions and modernization efforts, increased its military spending by 1.6% to $86.1 billion.
Poland and Estonia significantly increased their defence spending relative to GDP. Poland reached 4.12% and Estonia 3.43% of GDP in 2024, the highest within NATO.
The United States, the world's biggest spender, maintained its position with a total of $997 billion. The overall global military spending rose by 9.4% in 2024, though the exact U.S. increase percentage is not specified.
Sweden, in its first year of NATO membership, increased its spending by 34% to $12 billion. The UK has pledged to raise its defence spending to 3.5% of GDP by 2035, and 5% once further security-related spending is taken into account.
It's worth noting that military spending accounts for about 2.5% of global GDP. However, a fiscal multiplier for military spending in the short term is often lower than one, meaning that a rise of 1% of GDP in military spending triggers an overall rise in GDP of less than 1%. For every extra €100 spent on defence in Europe, the region's GDP rises by just €50.
Total military spending globally reached $2.72 trillion in 2024. NATO members' combined spending totalled $1,506 billion. The rise in military spending was the tenth consecutive year of increases, marking a significant trend in global defence spending.
In light of these increases, Europe is encouraged to favour its domestic industry in defence procurement, as imports currently account for more than 80% of Europe's defence procurement, of which three-quarters comes from the US. Greater pan-European co-operation and integration, including the UK, is crucial to create Europe's own "strategic enablers" independently from the US. To manufacture more weapons at home, national capitals would have to agree common strategic needs, pool resources, and keep restructuring the defence sector.
References: [1] Stockholm International Peace Research Institute (SIPRI) [2] Goldman Sachs [3] NATO [4] German Government [5] Estonian Government
- Despite the substantial rise in defence budgets, personal-finance matters continue to be a general-news topic, with budgeting remaining crucial for individuals.
- The surge in military spending has attracted the interest of finance analysts, including those at Goldman Sachs, who are closely monitoring the situation.
- Some countries, like Germany and Japan, have significantly increased their defence budgets, making investing in the defence sector an intriguing opportunity for business.
- Political changes, such as those following the Ukraine invasion, have influenced defence spending decisions in countries like Germany, impacting the global business landscape.
- The increase in military spending, particularly in countries like China and India, highlights the importance of war-and-conflicts as a significant factor in the global economy.
