Defense expenditures on a global scale soaring - potential for stimulating economic growth?
In 2024, the world witnessed a significant surge in defense spending, with total military expenditure reaching approximately $2.6–2.7 trillion, marking the highest annual increase since the Cold War. This rise was driven by geopolitical tensions and technological modernization.
Several countries experienced noteworthy increases in defense spending from 2023 to 2024. Among them, Poland, Estonia, Russia, China, Japan, and the United States stood out for their significant increases.
Poland had the highest defense spending as a share of GDP among NATO countries in 2024, reaching 4.12% of GDP. This marked a substantial rise from 3.26% in 2023 and 1.88% in 2014. Estonia increased defense spending to 3.43% of GDP in 2024, above the 3% threshold for the first time since tracking began, and a notable rise from their level just below 2% in 2014.
Russia boosted its military budget by 38% compared to 2023, reaching an estimated $149 billion in 2024, more than double its 2015 spending. China increased its defense budget by 7% over 2023, reaching approximately $314 billion in 2024, accounting for about half of Asia-Pacific's military spending. Japan had an even more striking rise of 21% in its military budget to $55.3 billion in 2024, marking the largest annual increase since 1952.
The United States remains the largest spender, allocating nearly $1 trillion in 2024, a continued growth from prior years. Germany's military spending rose by 28% to reach $88.5 billion in 2024.
Israel's military spending surged 65% to $46.5 billion in 2024, taking it to 8.8% of GDP, the second highest in the world (after Ukraine's 34%).
The world's biggest spenders are the US, China, Russia, Germany, and India, who together account for about 60% of the total. Military spending accounts for about 2.5% of global GDP in 2024.
Under pressure from the US, the UK has promised to raise defense spending to 3.5% of GDP by 2035, and 5% once further security-related spending is taken into account. The steepest year-on-year rise since at least 1988 was observed in 2024, with the US remaining the world's biggest spender, with a total military spending of $997 billion in 2024.
However, it's important to note that the economic consequences of these increased defense budgets are not without controversy. The Economist states that the most obvious economic consequence of bigger defense budgets will be to strain public finances, meaning higher deficits and probably higher interest rates. A recent paper by the Kiel Institute for the World Economy found the fiscal multiplier is often lower than one, suggesting that the economic growth generated by increased defense spending may be less than the amount spent. Pierre Briançon on Breakingviews agrees that military spending is not a major growth booster.
In conclusion, while the increase in defense spending is significant, it is crucial to consider the potential economic implications and to ensure that these increases are balanced with other national priorities.
[1] Stockholm International Peace Research Institute (SIPRI) [2] International Institute for Strategic Studies (IISS) [3] Congressional Research Service (CRS) [4] International Monetary Fund (IMF)
- Amidst the surge in defense spending worldwide, personal finance experts might want to consider the potential impact of higher interest rates due to strain on public finances as a result of increased military expenditure.
- As war-and-conflicts and politics continue to drive defense spending, investing in personal finance and budgeting may become increasingly important for individuals to navigate economic challenges.
- The SIPRI, IISS, CRS, and IMF are valuable sources for understanding the current trends in personal finance, including the ramifications of increased defense spending on the economy.
- General news outlets, such as The Economist, Breakingviews, and others, provide insightful analysis on the economic consequences of higher defense spending and its potential impact on interest rates.
- In order to achieve a balanced budget and maintain financial stability amidst the growth in defense spending, it is crucial for nations to prioritize personal-finance and economic growth alongside military expenditure.
