Defence spending was pushed up in 2022 fuelled by the war in Ukraine and the perceived threat from China, a new report says.
The latest edition of Military Balance by the International Institute for Strategic Studies (IISS) think tank is an annual assessment of global military capabilities and defence.
The 2023 edition looks back at what happened in 2022 – a year dominated by Russia's full-scale invasion of Ukraine.
According to the IISS research, the UK has fallen from the third-biggest defence spender worldwide to fourth and Russia has moved up two places to third.
The US remains top of Military Balance's defence spending table – spending $766bn in 2022, dwarfing second-placed China's estimated spend of $242.4bn (USD), while Iran is 10th.
In his opening remarks at the launch of Military Balance 2023, IISS director general and chief executive Dr John Chipman said Russia's war in Ukraine has "recast the security environment in Europe".
He said: "So far the war has been a political and military failure for Russia. Moscow hoped its forces would sprint to victory, but they are in a grinding war.
"The invasion has recast the security environment in Europe. The geopolitical centre of gravity has moved to the east and to the north.
"Sharpened security fears have led several European states to renew their defence spending commitments and focus on improved military capabilities."
At the start of 2022, experts predicted flat defence expenditure in Europe due to the economic difficulties countries were facing following the Covid pandemic – however, the invasion of Ukraine has changed that.
Fenella McGerty, a senior fellow for defence economics at IISS, said: "Several countries – around 20 – announced budget uplifts to varying degrees.
"The most significant of these, Germany, announcing that €100bn fund for defence but also to try to increase defence spending towards 2% of GDP from the 1.1/1.2% they currently spend."
Germany wasn't the only European country to reassess defence priorities as a result of the Russian invasion, the data shows.
Sweden, Finland and Bulgaria boosted their budgets by 10-20% and Serbia and Albania by more than 20%.
Despite that, in Europe, only the UK, Finland, Estonia, Latvia and Lithuania spent between 2 and 2.5% of their gross domestic product (GDP) – a measure of the size of the economy – on defence. The US, by comparison, spent 3.06%, IISS reported.
Unsurprisingly, Russia's immediate neighbours have been among the quickest to act.
However, despite Poland's defence budget increasing to 3% of GDP in 2023, it saw a decrease in 2022.
While global defence expenditure grew in nominal terms in 2021 and 2022, Ms McGerty says higher inflation meant that expenditure fell in real terms in both years.
She said:"Inflation was already an issue coming into 2022 because there was that resumption in demand following the Covid-19 pandemic.
"So it had already started to erode defence spending increases back in 2021 but the effect was so much greater in 2022 because of the spike in inflation. We saw several countries see double-digit inflation which most countries aren't used to that in Europe."
It's estimated that in 2022, inflation wiped $312bn (USD) off global defence expenditure – up from $222bn the year before.
The top 10 defence budgets in 2022 (in USD), according to IISS' Military Balance, were:
- US 766.6bn
- China 242.4bn (estimated)
- Russia 87.9bn (estimated)
- UK 70bn
- India 66.6bn
- France 54.4bn
- Germany 53.4bn
- Japan 48.1bn
- Saudi Arabia 45.6bn
- Iran 44bn
To compare, these are the top defence budgets (USD) for 2021 as per IISS:
- US 754bn
- China 207.3bn (estimated)
- UK 71.6bn
- India 65.1bn
- Russia 62.2bn (estimated)
- France 59.3bn
- Germany 56.1bn
- Japan 49.3bn
- Saudi Arabia 46.7bn
- South Korea 46.7bn