Defense spending spike globally set to stimulate economic development?
NATO Defense Spending Reaches Record Highs in 2024
Defense spending among NATO members reached an unprecedented level in 2024, accounting for 55% of the global total, according to a report by the Stockholm International Peace Research Institute. The total spending amounted to $1,506 billion, marking a 9.4% increase from the previous year and the tenth consecutive year of increases.
The United States remained the world's biggest spender, with a total of $997 billion, followed by China ($314 billion), and Russia ($149 billion). However, it was NATO countries bordering Russia that saw significant increases in defense spending as a percentage of their GDP. Poland, for instance, reached 4.12% of GDP, the highest among NATO members and notably high compared to previous years. Estonia also showed a strong increase, with 3.43% of GDP in 2024.
Europe's most pressing need is to create its own "strategic enablers" independently from the US, such as satellite-based intelligence, air-defence shields, and a joint command and control system. This comes as the European Commission believes defense spending will bring "benefits for all countries."
Notable increases were also observed in Germany, which experienced a 28% rise in defense expenditure, Japan, whose military budget rose by 21%, and Mexico, which increased its defense budget by 39%. Even countries like Guyana saw a 78% increase in military spending.
The UK, under pressure from the US, has promised to raise defense spending to 3.5% of GDP by 2035, and 5% once further security-related spending is taken into account. If the UK achieves this target, NATO members will be spending $800 billion more every year, in real terms, than they did before Russia invaded Ukraine.
However, experts warn that bigger defense budgets could strain public finances, leading to higher deficits and probably higher interest rates. A recent paper by the Kiel Institute for the World Economy found that the fiscal multiplier is often lower than one, meaning that a rise of 1% of GDP in military spending triggers an overall rise in GDP of less than 1% in the short term.
Similar analysis by Goldman Sachs estimates that the multiplier in Europe is even lower, at 0.5. Despite this, the world's biggest spenders, including the US, China, Russia, Germany, and India, collectively account for about 60% of the total military spending.
In conclusion, the year 2024 saw a significant increase in defense spending globally, with NATO countries, particularly those bordering Russia, showing the most substantial increases. As geopolitical tensions continue to rise, it is expected that defense spending will remain high in the coming years.
References:
- NATO Annual Report 2024
- SIPRI Yearbook 2025
- European Commission Report 2024
- Goldman Sachs Global Economics Paper 2024
- Kiel Institute for the World Economy Paper 2024
In light of the increasing defense spending among NATO countries, it may be prudent for individuals to consider the potential impact of higher interest rates on their personal finance, particularly with the expected strain on public finances. One way to stay informed about financial matters is by subscribing to a newsletter, which could provide updates on investing, finance, and general-news, including the ramifications of enhanced defense spending on the economy. For instance, a recent paper by the Kiel Institute for the World Economy suggests that the fiscal multiplier for military spending in Europe is lower than one, implying that a rise in military expenditure could result in a lower overall increase in GDP in the short term. Furthermore, others may find it interesting to know that gold, often considered a safe haven during times of economic uncertainty, has seen a fluctuating trend, with its value increasing by 7.2% in 2024.
