ANALYSIS: ‘Great Power’ Friction to Inflate 2020 Military Budgets

 In China, Industrial, Russia, USA, India, Air, Environment

Chilling rela­tions between the USA, China and Russia are fore­cast to push mil­i­tary spend­ing higher in 2020, con­tin­u­ing a trend that bodes well for the aero­space indus­try.

Total defence spend­ing is esti­mat­ed to grow 3 – 4% next year to $1.9 tril­lion world­wide, with funds pri­mar­i­ly spent on mod­ernising and replac­ing aging mil­i­tary equip­ment, accord­ing to a report released in recent days by con­sul­tan­cy Deloitte.

“Demand for mil­i­tary equip­ment is on the rise as gov­ern­ments across the globe focus on mil­i­tary mod­erni­sa­tion, given increas­ing global secu­ri­ty con­cerns,” says the report, called the 2020 Global Aerospace and Defence Industry Outlook. “The uncer­tain­ty and sus­tained com­plex­i­ty of the inter­na­tion­al secu­ri­ty envi­ron­ment world­wide is likely to boost global defence spend­ing over the next five years.”

The USA main­tained its posi­tion as the world’s top mil­i­tary spender, with a budget of $716 bil­lion, in 2019. Washington is expect­ed to keep its top place in 2020, though it has not finalised a budget.

Other so-called “Great Power” nations, such as China and Russia, as well as region­al powers such as India, will likely con­tin­ue spend­ing increas­es in the coming years, which will help push up total spend­ing.

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Norway recent­ly declared ini­tial oper­at­ing capa­bil­i­ty for its Lockheed Martin F‑35A fight­ers

Royal Norwegian Air Force

Worldwide mil­i­tary spend­ing is antic­i­pat­ed to grow at a com­pound annual growth rate of about 3% over the 2019 – 2023 period to reach $2.1 tril­lion by 2023, accord­ing to Deloitte.

“In Asia, higher defence spend­ing by major region­al powers such as India, China, and Japan will likely con­tribute to global sector growth,” says the report. “In Europe, mem­bers of NATO are also increas­ing defence bud­gets to reach a defence spend­ing target of 2% of [gross domes­tic prod­uct]. Apart from this, ongo­ing geopo­lit­i­cal ten­sions in the Middle East are cre­at­ing a strong demand for mil­i­tary equip­ment.”

International demand for defence equip­ment ought to ben­e­fit American man­u­fac­tur­ers through the US government’s Foreign Military Sales pro­gramme, says Deloitte. US Foreign Military sales rose 33% to reach $55.7 bil­lion in 2018, accord­ing to the report. And arms exports are on track in the first nine months of 2019 to match last year’s total, with $44.2 bil­lion of equip­ment already sold.

“However, a strength­en­ing dollar could dampen growth in [Foreign Military Sales] as some of the European defence export­ing nations could become more price com­pet­i­tive,” notes the report.

China remains the second-largest mil­i­tary spender, after the USA, reach­ing a 14% share of the global total in 2018. However, the coun­try is step­ping off the pedal slight­ly in 2019 as its mil­i­tary budget will likely only grow 7.5% to $178 bil­lion.

That is a slower rate of growth com­pared to 2018 when its budget expand­ed by 8.1%.

In recent years, China’s eco­nom­ic growth has been slowed by a trade war with the USA and a shift away from an indus­tri­al base dom­i­nat­ed by man­u­fac­tur­ing. In addi­tion to eco­nom­ic head­winds, Beijing is trying to deal with rising levels of gov­ern­ment debt.

Russia’s defence spend­ing fell 3.5% in 2018 to $61.4 bil­lion. The drop was caused by slow eco­nom­ic growth, in part the result of US and European sanc­tions. Last year, Russia fell out of the top five defence-spend­ing nations for the first time since 2006, says Deloitte.

Still, Moscow’s defence spend­ing remained rel­a­tive­ly high as a per­cent­age of gross domes­tic prod­uct at 3.9% in 2018, which was higher than the USA’s 3.2% total that year.

As an impor­tant rising power, India boasts one of the fastest-grow­ing mil­i­tary bud­gets. Delhi plans to spend $130 bil­lion to mod­ernise its mil­i­tary over the next five years. Its defence budget of $44.6 bil­lion in 2020 is to be 9.3% higher than the year before.

Source: Flight Global

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