Europe and Asia Pacific accelerate spending in response to emerging
security threats; NATO defence spending to increase for first time since
2010
Security fears and threats to stability have driven many Western
governments to end cuts to defence spending, according to a new report
released today by IHS Inc. (NYSE: IHS), the leading global source of
critical information and insight.
The IHS
Jane’s Defence Budgets Annual Report examines and forecasts defence
expenditure for 104 countries and captures 99 percent of global defence
spend.
Key points from this year’s report:
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Asia Pacific’s share of global defence spending will rise from one
fifth in 2010 to almost one third by 2020. In the same time frame,
North America is expected to fall from almost half to around one third
of global spending;
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Growth accelerated in Asia Pacific as states bordering the South China
Sea boosted defence spending;
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Eastern Europe replaced the Middle East as the region with the fastest
growing defence budgets, with double-digit increases in response to
the Ukraine crisis;
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Russia saw the largest increase in defence spending for a decade, but
cuts will begin next year due to deteriorating economic and fiscal
conditions;
-
Low oil prices have seen the unprecedented period of budget increases
in the Middle East come to an end, however cuts were limited.
Global trends
Global defence spending is set to increase from $1.65 trillion in 2015
to $1.68 trillion in 2016 as global economic growth accelerates and
Western markets respond to heightened security concerns. Globally, 2016
is expected to mark the return to defence budget growth, which is
expected to be sustained for the remainder of the decade. NATO defence
spending is expected to increase for the first time since 2010.
“This year was another year of flat defence spending but we are now
entering a growth period,” said Fenella McGerty, principal analyst at
IHS. “Defence strategies have shifted in the West in light of worsening
security threats.”
While the US continues to be the largest single player, the Asia Pacific
region will be the driving force behind global defence budget growth
over the next five years.
Meanwhile, lower oil prices are serving to subdue the Middle East and
North Africa regions. “Of the ten fastest growing defence budgets in
2015, just three were in the Middle East, down from six last year,”
McGerty said.
In terms of defence investment, $1.6 trillion is expected to be spent on
defence procurement from 2016 to 2020, with a further $560 billion due
to be invested into research and development.
Asia Pacific spending accelerates as regional tensions rise; China
continues to dominate
“Rising tensions in Asia Pacific have seen a long overdue process of
military modernization move up the political agenda in a number of
countries,” said Craig Caffrey, principal analyst at IHS. “The
Philippines, Indonesia, Japan and Vietnam are all following China’s lead
and we see no sign of this trend coming to an end.” By 2020, total
regional spending is expected to reach $533 billion annually from $435
billion in 2015.
Chinese defence spending makes up about 40 percent of all defence
spending in the Asia Pacific region. Between 2010 and 2015, China’s
defence budget increased by around 43 percent in real terms, from
roughly $134 billion to $191 billion. Despite a slowdown in China’s
economy, the country’s defence budget is expected to grow further to
$255 billion by 2020.
Despite a decade of cuts, Japan remains one of the world’s largest
spenders, with a defence budget of roughly $49 billion in 2015. Since
2012 increased emphasis on defence under the Abe administration has seen
core spending return to growth. However, in reality, core expenditure
remains flat and has declined as a share of state spending and GDP.
Regional conflict and modernisation efforts spur growth in Eastern
Europe and Baltics
After a turbulent five years, defence spending is set to soar in Eastern
Europe as countries move towards spending 2 percent of GDP on defence.
“Driven by the crisis in the Ukraine and Poland’s modernisation
programme, Eastern Europe is now the fastest growing region globally,”
McGerty said. “This position has been held by the Middle East for the
last three years.”
Defence spending growth in the region averaged 13 percent in 2015, up
from 4 percent in 2014, according to the IHS report. Notably, Ukraine’s
defence budget increased by 70 percent in the past year as Kiev
responded to unrest in the east of the country. Meanwhile Lithuania,
Poland, Slovakia and Latvia also enacted double-digit real terms
increases.
“The regional surge in defence spending is particularly notable in the
North-East,” McGerty said. “We saw remarkable growth of 20 percent in
the Baltics in 2015 and this is expected to continue in 2016.”
After three years of rapid growth, Middle East spending levels off
Propelled by record energy sector revenues, the Middle East was the
fastest growing region globally between 2012 and 2014. But, 2015 saw the
first defence budget cuts for a decade as oil prices crashed. “We saw
the first marginal cuts in 2015, but, those cuts are now expected to
deepen in 2016 as states are forced into pursuing fiscal consolidation
with more vigour,” Caffrey said.
Nevertheless, heightened regional security concerns are expected to
ensure that defence budgets are protected in relative terms. “As the
Gulf States take a more active role in regional security, we will likely
see upward pressure on defence budgets in the medium to long term,”
Caffrey said. As a result defence spending in the region is expected to
be largely flat at $170 billion over the next two years with a major
downturn seen as unlikely.
The countries with the fastest growing defence budgets in the region in
2015 were Iran, Tunisia and Israel. Saudi Arabia will still spend the
most on defence in the Middle East and North Africa region, with $46
billion in 2015.
Western Europe emerges from five years of cuts
Since 2010, Western European spending has contracted by 1.3 percent on
average every year. However, 2016 will be the first year of increased
defence spending in Western Europe, as major procurement projects come
online and as governments boost spending in response to growing security
fears.
“2015 appears to be the year when defence turned a corner in Western
Europe,” McGerty said. “There was widespread recognition that cuts need
to end and the region needs to respond to an increasingly complex
security environment.” As a result of changes implemented this year, an
extra €50 billion is expected to be spent on defence over the next five
years, the IHS report said.
The UK, France and Germany account for more than 60 percent of regional
spending in Europe and have held their places in the top 10 of global
spenders in 2015. Notably, Norway and Finland will grow the most in
2016, with 10 percent and 6 percent growth rates, respectively.
Russia reaches peak spending
2015 was the year Russian defence spending peaked after a decade of
staggering defence budget growth. The country’s core defence budget has
trebled since 2007 in nominal terms, reaching 4.3 percent of GDP this
year. Russia’s 2015 defence budget was $54 billion, up from $45 billion
in 2014.
“Russian defence spending was starting to look unaffordable even before
2015’s economic and fiscal downturn,” Caffrey said. “Cuts are now
unavoidable as Moscow tries to keep its budget deficit in check.”
Russia’s defence budget is expected to fall in real terms over the next
five years; however spending is still projected to be higher in 2020
than what it was in 2014.
US
The US defence budget declined from $625.0 billion in 2014 to $595.3
billion in 2015. Notably, the US 2015 budget represents 36 percent of
the global defence budget, down from 46 percent of the global total in
2010. “However, the US defence budget is still greater than the sum of
the next nine countries' defence budgets,” said Guy Eastman, senior
analyst at IHS.
About the IHS Jane’s Annual Defence Budgets Report
To learn more about IHS Jane's Defence Budgets visit www.ihs.com/jdb.
The IHS Jane’s Annual Defence Budgets Report is the world’s most
comprehensive, forward-looking study of government’s defence budgets.
Tracking 99 percent of the global defence expenditure from 104 of the
world’s largest defence budgets, data is compiled from IHS Jane’s
Defence Budgets online solution platform. It includes five-year
forecasts, historical data, budget charting, trend evaluation and
in-depth analysis by country. In this study, values are based on
constant 2015 US dollars.
Data
Top 15 defence budgets in 2014 and 2015 (in millions US dollars). For
the top 20, please contact press@ihs.com.
In this study, values are based on constant 2015 US dollars.
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Country
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2014 Defence Budget (millions USD)
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Country
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2015 Defence Budget (millions USD)
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1
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United States
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624,960
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United States
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595,330
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2
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China
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175,066
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China
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190,914
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3
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United Kingdom
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66,537
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United Kingdom
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66,545
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4
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France
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56,708
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France
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56,467
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5
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Japan
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50,842
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Russian Federation
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54,127
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6
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Saudi Arabia
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49,649
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India
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49,654
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7
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India
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47,080
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Japan
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49,298
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8
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Russian Federation
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44,608
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Saudi Arabia
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46,277
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9
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Germany
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43,876
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Germany
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43,797
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10
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Korea, South
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34,247
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Korea, South
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35,667
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11
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Australia
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32,973
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Australia
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34,260
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12
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Brazil
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31,295
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Brazil
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30,667
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13
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Italy
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29,726
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Italy
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29,011
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14
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Canada
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17,761
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Canada
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17,142
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15
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Turkey
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16,230
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Turkey
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15,851
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Top 10 fastest growing defence budgets. For the top 20, please contact press@ihs.com.
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Country
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Growth in 2014 (percent)
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Country
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Growth in 2015 (percent)
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Ukraine
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63.05%
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Ukraine
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69.97%
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Qatar
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25.70%
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Iran
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29.01%
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Iran
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20.98%
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Poland
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21.97%
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Egypt
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13.71%
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Russian Federation
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21.34%
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Iraq
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12.99%
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Philippines
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14.98%
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Poland
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12.57%
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Indonesia
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12.78%
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Algeria
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12.47%
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Israel
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9.90%
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Australia
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11.16%
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China
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9.05%
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Saudi Arabia
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10.83%
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Iraq
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8.55%
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Russian Federation
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10.77%
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Vietnam
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7.15%
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####
About IHS (www.ihs.com)
IHS (NYSE: IHS) is the leading source of insight, analytics and
expertise in critical areas that shape today’s business landscape.
Businesses and governments in more than 150 countries around the globe
rely on the comprehensive content, expert independent analysis and
flexible delivery methods of IHS to make high-impact decisions and
develop strategies with speed and confidence. IHS has been in business
since 1959 and became a publicly traded company on the New York Stock
Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS is
committed to sustainable, profitable growth and employs approximately
8,600 people in 32 countries around the world.
IHS is a registered trademark of IHS Inc. All other company and
product names may be trademarks of their respective owners. © 2015 IHS
Inc. All rights reserved.
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