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Higher defense spending has boosted the order backlogs for the Dassault Aviation Rafale (top) and Lockheed Martin F-35.
The defense sector is undergoing a period of exceptional growth. Spurred initially by Russia’s full-scale invasion of Ukraine in 2022 and then bolstered by concerns over Chinese intent in the Asia-Pacific region, followed by the Israel-Gaza conflict, spending on defense has increased at an average rate of 5.4% in real terms since 2021. The result is that global defense outlays have reached $2.3 trillion in 2024, surging past 2021’s $2 trillion.
There have been only two periods of faster growth since the end of the Cold War: in 2001-03, following the 9/11 attacks, and in 2006-08, as the George W. Bush administration committed additional resources to the war in Iraq. The current expansion of global military expenditure is different, driven by a much larger number of states and based on a broad range of strategic challenges around the globe.
In particular, Europe has increased spending as it responds to the renewed threat of a belligerent Russia on its eastern borders. The 27% increase in real terms in European defense budgets since 2021 is the most rapid period of growth for the region since the 1950s. The continent’s 16 biggest defense spenders have boosted outlays to $421 billion from $333 billion only three years earlier, with further growth planned beyond the decade.
In Asia, China remains the main driver, both directly through robust annual increases in its defense budget and indirectly by motivating higher spending among a number of its neighbors. In recent years, Australia and Taiwan have bolstered their military budgets, while Japan has embarked on a defense buildup through a 35% budget increase in real terms over the last two years.
Most recently, renewed instability in the Middle East—which has experienced minimal growth since 2016—has resulted in the largest annual increase in that region’s defense spending for a decade. Led by Algeria, Iraq and Israel, budgets swelled by 12% in real terms in 2023, the fastest rate of any region.
Even though the U.S. fiscal 2025 budget request suggests resourcing for the Pentagon will remain flat in the medium term, this new trend of sharply rising spending elsewhere is likely to ensure that global defense expenditures continue to rise. International markets are likely to prove a crucial and attractive hunting ground for defense suppliers seeking revenue growth.
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