Contact: Dan Darling, International Military Markets Analyst
Phone: (203) 426-0800
Fax: (203) 426-4262
Forecast International, Inc.
22 Commerce Rd. Newtown, CT 06470 USA
FOR IMMEDIATE RELEASE
Global Defense Market on Upswing as Asia Spearheads Growth
NEWTOWN, Conn. [September 8, 2016] ? After several years in the doldrums, the global defense market once again returned to growth in 2015. Growth began occurring not only where regional rivalries and strategic crossroads served to potentially unleash conflict, but also in markets once on long downward trajectories such as in Europe. While further market growth in 2016 appears to be negligible in U.S. dollar terms, according to Forecast International the overall global trend continues to indicate room for further defense investment expansion.
"The largest mitigating factor in our 2015-2016 spending assumptions relates to negative fluctuations in local currencies in Europe and some Eastern and Southern Asian countries versus the U.S. dollar," says Forecast international military markets analyst Dan Darling. "In regions like Latin America, Africa, Central Asia and the Middle East, there have been slight downturns due to falling commodity and energy prices, but otherwise, in many major markets the numbers indicate rising, not falling, defense investment."
Despite the perception of a declining defense budget, the United States continues to experience nominal growth – though future cuts may still be imposed starting in 2018 when the current two-year deal relaxing budget caps expires. But for 2016, the U.S. market alone comprises 40 percent of total global defense spending per Forecast International figures, and for now the company estimates the overall Pentagon budget will grow by about 4.6 percent by 2020.
Meanwhile, after a steady decline in consolidated defense investment across Europe brought on by a double-dip recession between 2009 and 2013, military budgets are once again going up. However, the majority of increases within the 28 European Union states involve smaller military-capacity members such as Baltic partners Estonia, Latvia and Lithuania; poorer states such as Bulgaria and Romania; and/or former Warsaw Pact members like the Czech Republic and Poland that continue to move beyond Soviet-legacy and 1980s-vintage weaponry.
Thus, despite recent commitments by Germany and Britain to top-up their defense investment levels following some lean years, the bulk of European increases at the national level involve countries starting from low budgetary bases.
The impetus behind much of the slow return to consolidated European defense spending growth has been an increasingly revanchist and assertive Russia, whose military has been slowly rebuilt in key areas over the past decade-and-a-half thanks to increased investment between 2000 and 2008 and then again from 2011 onward. Progress in areas such as joint force operations, electronic warfare (particularly in the area of jamming systems), Special Forces effectiveness, and overall force readiness to complement Russia's advanced air-defense missile systems and highly capable combat aircraft have opened the eyes of NATO members and forced a rethink in terms of a peer competitiveness evaluation of Russian military capability.
On the other end of the global defense picture is Asia, which – excluding Russia – represents the most rapidly growing macro market for military investment. Whereas year-on-year consolidated defense spending growth for Europe in 2016 totaled 1.8 percent according to Forecast figures, for Asia-Pacific the rise in spending from 2015 to 2016 amounted to 5 percent.
"The impetus behind much of the defense spending growth in the region relates to China," Darling says. "While normal military modernization cycles serve to drive investment on a country-by-country basis depending on equipment serviceability issues, the larger regional picture indicates concerns over China's assertive nature regarding territorial disputes and its drive for regional hegemony."
Following a five-year stretch during which annual military spending increases reached double digits, China's cooling economy prompted the government to "slow" defense budget growth to 7.6 percent under its 2016 earmark. Nonetheless, Forecast anticipates another 7 percent defense-related budget increase for China in 2017, and further growth out to 2020 that would bring the topline figure up to $200 billion from the current $143-$145 billion baseline.
By comparison, the 2016 rise in Japan's defense budget – the fourth such consecutive increase under Prime Minister Shinzo Abe – amounted to just 1.4 percent. Neighboring South Korea, which is developing the Korean Air and Missile Defense (KAMD) system aimed at countering North Korea's arsenal of ballistic missiles, increased its defense earmark by 4.3 percent in 2016 and seeks another top-up in 2017 of 4.05 percent.
In Southeast Asia, where China's militarized island-building efforts and aggressive stance in the South China Sea have elicited worries, the combined defense budget increase for Indonesia, Malaysia, the Philippines, Singapore and Vietnam from 2015 to 2016 equaled 8.4 percent. By 2020, Forecast International expects the cumulative defense spending of these five nations to grow by 25 percent, or roughly 6.3 percent per annum.
"The clear indications are that the countries whose territorial claims and exclusive economic zones run against China's 'Nine Dash Line' demarcation recognize the degree to which they are vulnerable," Darling says. "While that merely states the obvious, when one looks further into the reinvigorated approach to defense investment undertaken by these Southeast Asian nations, the crucial underpinning of these budgetary increases is seen in how each of them is reviewing its material needs with an eye on air- and sea-based platforms."
Combat aircraft notwithstanding, there is a new or renewed emphasis among these nations on maritime patrol and airborne early warning aircraft, as well as anti-submarine/ship warfare helicopters and surveillance drones. On the shipborne side of the equation, there are ongoing or future projects for guided-missile frigates and littoral patrol ships.
"Because of the steady budgetary increases in East and Southeast Asia, we see the share of the Asian slice of the global market set to increase from the current 23 percent currently to well over 30 percent by the end of the decade," states Darling.
About Forecast International
Forecast International, Inc. is a leading provider of Market Intelligence and Analysis in the areas of aerospace, defense, power systems and military electronics. Based in Newtown, Conn., USA, Forecast International specializes in long-range industry forecasts and market assessments used by strategic planners, marketing professionals, military organizations, and governments worldwide. Forecast International's resources and extensive base of experience can be readily adapted and efficiently focused to fulfill a broad spectrum of civil and military consulting and special research requirements.
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