Defence spending worldwide is on the rise, with countries increasing their budgets in response to geopolitical tensions and security threats. Last year, global defence spending increased by nearly 4% in real terms to over $2 trillion. The share prices of defence firms are performing better than the overall stock market, indicating investor confidence in the sector. Many NATO allies, including Germany, are planning to meet or exceed the alliance’s target of spending 2% of GDP on defence, while other countries, such as Japan, are also planning significant increases in their defence outlays.
If all countries that currently spend less than 2% of GDP on defence were to meet that level and the remainder increased spending by half a percentage point of GDP, global defence outlays could rise by close to $700 billion a year. This increase in defence commitments and spending could generate over $200 billion in extra defence spending globally each year. The recent events, such as Russia’s invasion of Ukraine, have heightened concerns about security and the need for increased defence capabilities.
The West is sending more weapons, of growing sophistication, to Ukraine to help in its counter-offensive against Russia. NATO countries are also increasing their defence budgets and aiming to surpass the 2% target, with some countries like Poland aiming to reach 4% this year. France has even spoken of shifting to a “war economy.” The arms race is not limited to Europe, as Taiwan is extending military service and the AUKUS deal between the US, UK, and Australia will also lead to increased defence capabilities in the Asia-Pacific region.
Overall, the global defence landscape is undergoing a significant shift, with countries ramping up their military spending in response to growing security threats. This trend is likely to continue as geopolitical tensions persist and nations seek to ensure their security in an increasingly uncertain world.
