In February every year, Munich city centre experiences a weekend in lockdown: it is then that the Munich Security Conference, or MSC for short, is held in the luxury Bayerischer Hof hotel. More than 600 delegates attended the 55th such event recently. Alongside scientists, business leaders, military staff and representatives of various think-tanks, they included more than 30 heads of state and government as well as over 80 foreign and defence ministers. Some 4,300 police officers cordoned off a wide area around the venue. Meanwhile, the tense and volatile geopolitical situation was laid bare in the interior of the five-star hotel. Conference host Wolfgang Ischinger made no bones about this: “Our international climate is characterised by uncertainty, instability and mistrust”, he stated at the opening ceremony.
A brief look back at the MSC is enough to confirm this impression: US vice-president Mike Pence underlined the USA’s demand that Europe put an end to the Nordstream 2 pipeline project with Russia. At the same time, he called on the old continent to finally withdraw unanimously from the nuclear agreement with Iran. For his part, the foreign minister of the Islamic Republic, Mohammed Javad Sarif, sharply criticised the USA and claimed Washington had a “pathological obsession” with Tehran. The words coming from Russia's foreign minister, Sergei Lavrov, were hardly diplomatic either: he accused the Europeans of having allowed themselves to be “drawn into a senseless rivalry with Russia”. Angela Merkel, by contrast, drew attention with a stirring appeal for international cooperation. Although the German chancellor was given a standing ovation after her address, the MSC ended – not for the first time – with the conclusion that the world order we have got used to threatens to go off the rails. View more information on investment solutions on the topic “Global defence: geopolitical risks stimulate growth”.
Germany’s “Die Welt” summarised the security conference somewhat cynically, yet accurately: “They’re all talking about cooperation – and rearming”, ran the headline on the daily newspaper’s website. Indeed, the various geopolitical tensions are causing countries around the world to ramp up their defence spending. The International Institute for Strategic Studies (IISS) presented the latest figures for this market at the MSC. These show that global military spending climbed 2% to USD 1.67 billion last year. The USA accounts for more than half of this growth, the Trump administration having increased its military budget by USD 44.5 billion. This increase is roughly equivalent to the entire German defence budget (see graph). It comes as little surprise that China is also investing massively in warships, bombers and rockets. According to the ISS, the People's Republic upped its expenditure by an average of 8% in the 10 years to 2017. China still lags far behind the USA in terms of the ratio of defence spending to economic output: in 2017 Beijing appropriated 1.9% of its gross domestic product (GDP) for this purpose. On a global comparison, Saudi Arabia leads the way, with the kingdom spending one tenth of GDP on its military (see graph).
In the global security debate, the above ratio plays a key role. NATO has set itself the target of every member state investing at least 2% in defence by the year 2025. However, only a few states from the transatlantic alliance reach this mark, a fact that US president Donald Trump sourly pointed out when taking a swipe at everyone at the NATO summit in July 2018: should the European allies not increase their defence spending, the USA could “do its own thing”. To meet the US president's demand, Europeans would have to invest heavily. According to the IISS’s calculations, NATO members from the old continent would have had to spend an additional USD 102 billion in order to achieve the 2% mark in 2018. The conclusion is that the international defence industry can reckon on plenty of orders and structural growth in the future as well.
VIEW MORE information on investment solutions on the topic “Global defence: geopolitical risks stimulate growth”.
