From: The Military Balance IISS
Global economic growth slowed from 5.1% in 2010 to 3.8% in 2011 and an estimated 3.3% in 2012, as advanced economies continued to struggle with high levels of sovereign, bank and household indebtedness. Heightened financial contagion emanating from the eurozone – the 17 countries using the euro as a common currency – adversely affected European growth, while the unwinding of various domestic stimulus packages enacted in Asia in the aftermath of the 2008 financial crisis served to limit the extent to which Asia was able to drive global demand. High oil prices, an anaemic US economic recovery, and the lagged effects of incremental monetary tightening instituted across Asia and Latin America throughout 2011 acted as further constraints to 2012 activity.
Global Spending Changes 2011 – 2012
Despite the global downshift, emerging economies in Asia, the Middle East and Latin America are projected to maintain steady rates of growth, while advanced economies continue to address the weakness of their public finances. According to the International Monetary Fund’s April 2012 World Economic Outlook,
Gross debt-to-GDP ratios will rise further in many advanced economies, with a particularly steep increase in the G7 economies, to about 130% by 2017. Without more action than currently planned, debt ratios are expected to reach 256% in Japan, 124% in Italy, close to 113% in the US and 91% in the euro area over the forecast horizon. … In a striking contrast, many emerging and developing economies will see a decline in debt-to-GDP ratios, with the overall ratio for the group dropping to below 30% by 2017.
Defence Spending 2011–12
Reflecting these macroeconomic trends, global defence spending fell in real terms for a second year running in 2012. After a 1.5% real reduction in 2011, real defence spending declined by a further 2.05% in 2012 (constant 2010 prices and exchange rates).
Despite the overall reduction, defence spending trends varied considerably across regions. Real defence spending rose in Asia by 2.44% in 2011, before accelerating to 4.94% in 2012. In a similar vein, real defence spending in Russia and Eurasia grew by 3.11% in 2011, before rising by 13.28% in 2012. In Latin America, after a 0.71% real reduction in 2011 regional spending (caused in part by higher-thanexpected rates of inflation), real defence spending grew in 2012 by 4.0%. Similarly, after high oil prices in 2011 contributed to greater-than-anticipated inflation in the Middle East and North Africa, real defence spending is estimated to have fallen by 3.06% in 2011, before rising by an estimated 4.57% in 2012.
NATO vs ASIA Military Spending
Meanwhile, defence austerity in Europe saw real defence spending in Europe decline in both 2011 and 2012, falling by 2.52% in 2011 and by a further 1.63% in 2012. In North America, real military spending declined by 2.6% in 2011, and a further 7.5% in 2012. Sub-Saharan Africa saw a 0.3% real decline in 2011 spending (2012 trend unavailable at time of publication due to incomplete data availability), and continued to account for just 1% of global defence spending. (Note: real figures used here are measured at constant 2010 prices and exchange rates, see Figure 1 for further details.) See also ‘Comparative Defence Statistics’, pp. 41–2.
Asian and European Spending Converges
These general macroeconomic and defence-spending trends illustrate a broader shift in the underlying balance of global defence spending. This is highlighted by the convergence between Asian and NATO European defence-spending levels since the onset of the financial crash of 2008. As shown in Figure 2, between 2005 and 2007 (i.e. prior to the 2008 financial crisis), nominal defence spending in Asia (excluding Australia and New Zealand) rose from around US$148.1 billion to US$178.4bn, an average annual rate of increase of 9.8%. Nominal defence spending in NATO Europe rose at a broadly similar rate over the same period – from US$252.7bn in 2005 to US$298.5bn in 2007, an average annual rate of increase of 8.8%.
However, after the 2008 financial crisis, a marked convergence began between Asian and NATO European spending levels. Nominal NATO European defence spending fell from a peak of US$305.6bn in 2008 to a post-crisis low of US$262.7bn in 2012, declining by an average of 3.6% per annum in each of the four years since the crisis. By contrast, nominal Asian defence spending post-2008 has continued to rise at just under pre-crisis rates, with spending increasing from US$207.4bn in 2008 to US$287.4bn in 2012, equivalent to an average annual growth rate of 8.6%. In the process, nominal Asian spending overtook that of NATO Europe, with the former rising from US$268.8bn in 2011 to US$287.4bn in 2012, while the latter fell from US$290.0bn in 2011 to US$262.7bn in 2012.