Global defence spending is declining as governments allocate funds to reactivate the economy in the wake of the coronavirus pandemic, Frost & Sullivan said in a recent analysis.
Their report, “Post-pandemic Growth Opportunity Analysis of the Defence Industry,” presents the impact of global spending on defence under three scenarios—gradual containment, severe pandemic, and global emergency.
As governments around the world allocate funds to contain the COVID-19 pandemic and reactivate the economy, under the severe pandemic scenario, defence spending will stagnate at current levels for the short term (2020-2021), Frost & Sullivan said. In the global emergency scenario, defence spending will reduce, though this will mainly depend on global and regional political conditions.
But, in the long term, it will be cut by at least 10%, as witnessed in the past.
“The decline in GDP and the increase of budget deficits would have an impact on defence spending, but the effect would be lower than other industries,” said Alexander Clark, Aerospace & Defence Research Analyst at Frost & Sullivan. “Additionally, governments across the world will promote investments for national security and as potential investments for export revenue.”
Clark added: “With increasing geopolitical tensions, the regional defence spending ratio will remain unaffected as the underlying political factors continue to remain constant. Further, the United States, Asia and Europe, respectively, will remain the biggest consumers of defence products.”
Despite this, defence market participants are likely to increase revenue realisation from a services portfolio by redesigning their strategies and customer engagement models, including mergers and acquisitions, vertical integration, focussing on robotics and artificial intelligence and chemical, biological, radiological and nuclear (CBRN) defence.