Defense spending growth on a global scale: Potential for economic boost?
Global Military Spending Surges in 2024
Military spending by nation states has seen a significant increase, with total expenditure reaching an unprecedented $2.72 trillion in 2024, according to a report by the Stockholm International Peace Research Institute (SIPRI). This marks a 9.4% increase in real terms compared to the year before.
The United States remains the world's biggest spender, with a total of $997 billion, followed by China, which upped spending by 7% to $314 billion. Japan experienced a significant 21% increase in defense spending, raising its budget to $55.3 billion, while Germany noted a 28% rise to $88.5 billion.
Notable rises were also seen in other countries, including India, which had a modest 1.6% increase, reaching $86.1 billion, and Ukraine, which spent the highest proportion of its GDP on defense at 34%. Israel's spending surged 65% to $46.5 billion, taking it to 8.8% of GDP, the second highest in the world (after Ukraine's 34%).
Several European countries have committed to increasing defense spending towards 5% of GDP over the coming decade, including the UK, which currently spends 2.3% of its GDP on defence but has promised to raise this to 3.5% by 2035, and 5% once further security-related spending is taken into account.
However, the fiscal multiplier for military spending 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% in the short term. This could potentially strain public finances, leading to higher deficits and probably higher interest rates, as suggested by The Economist.
Europe's most pressing need is to create projects such as satellite-based intelligence, air-defence shields, and a joint command and control system to reduce its reliance on US imports, which account for more than 80% of Europe's defence procurement, with three-quarters coming from the US. Greater pan-European co-operation and integration, including the UK, is necessary to create Europe's own "strategic enablers" independently from the US.
Sweden, in its first year of Nato membership, increased its spending by 34% to $12 billion (2% of GDP). France is the ninth biggest spender, with a defence budget of $64.7 billion. Poland's spending grew by 31% to $38.0 billion. If the UK achieves its target, Nato members will be spending $800 billion more every year, in real terms, than they did before Russia invaded Ukraine.
The world's biggest spenders are the US, China, Russia, Germany, and India, who together account for about 60% of the total. Saudi Arabia and Russia both spend over 7% of GDP on defense budgets, reflecting high relative military spending. Taiwan saw a near 2% increase in its defense budget, reflecting growing regional tensions.
In summary, the most significant percentage increases in defense budgets between 2023 and 2024 occurred in Germany (28%), Japan (21%), and China (7%). Meanwhile, Ukraine's defense spending as a percentage of GDP (34%) is the highest in the world, reflecting its wartime conditions. Other major countries like India and Taiwan had smaller yet notable increases, while NATO European members have committed to increasing defense spending towards 5% of GDP over the coming decade.
- The surge in global military spending in 2024 has raised concerns about its impact on interest rates, especially if it leads to higher deficits.
- The finance and wealth-management industry may experience shifts as a result of increased military spending, affecting personal-finance decisions.
- The education and self-development sector could see more interest in topics related to war and conflicts, politics, and general news, given the significant increase in military spending.
- The sports industry might face pressure as governments divert funds from recreational activities to military spending.
- Crime and justice may also see changes, with potentially more resources allocated to national security and defense, possibly impacting the investigation and prosecution of non-military crimes.
- The defense industry, particularly businesses involved in satellite technology, air defense, and command and control systems, are likely to benefit from increased military spending.
- Investing in businesses within the defense industry, such as those in Europe aiming to reduce their reliance on US imports, could be a strategic move for interested investors.
