Forecast International Expects Defense Spending to Project Upward Across Asia-Pacific Region

NEWTOWN, Conn., Oct. 31, 2013 (GLOBE NEWSWIRE) -- As the developing countries of the Far East continue to experience healthy levels of economic growth, the Asia-Pacific arena will increasingly serve as the go-to market for defense suppliers, according to a recent analysis by Forecast International. Percolating territorial tensions in the East and South China seas, regional rivalries, and military modernization programs propelled by growing economies are all serving to drive defense spending upward across the region.

"There are a host of threads running through the larger regional dynamic," Forecast's Asia-Pacific analyst Dan Darling notes. "Many of these involve peer competitor, state-versus-state standoffs such as India-Pakistan or North versus South Korea. Others relate to maritime presence requirements, territorial disputes, and military hardware upgrades made possible by upswings in economic growth."

Yet another factor looms large over the regional military picture: the steady growth in China's military spending over the past decade. The rise of Chinese defense investment comes as the People's Liberation Army seeks to reach technological par with peer competitors in select areas while advancing asymmetrical capabilities capable of offsetting U.S. advantages in others. Between 2008 and 2013, the Chinese military budget doubled in nominal terms, and Forecast International projects that China's defense earmark will be 41 percent higher by 2017.

Of the 27 percent overall nominal spending increase across the Asia-Pacific military market projected by Forecast International between 2013 and 2017 from the previous five-year period, almost 60 percent of that differential is expected to stem from China.

The natural byproduct of Chinese military modernization and its maritime expansion has been the reactive response on the part of many countries that either find themselves pitted against Beijing in regard to territorial claims or are alarmed by an increased Chinese naval power projection capability. The largest regional peer competitor of China in manpower terms is India, which, confronted by Pakistan on its northwest border and China on its northeast border – as well as a nascent Chinese maritime basing link running through the Indian Ocean – is expected to increase its level of defense spending over the next four years by 32 percent from its 2013 baseline.

Meanwhile, changes over the past year that have brought more pro-military governments into power in Japan and Australia indicate that defense allocations in those countries should be expected to rise over the near term as well. In the case of Australia, Forecast International projects steady increases in military spending over the coming five years totaling about $25 billion above the 2013 earmark of $26 billion, equal to $5 billion in additional annual funding above the 2013 defense budget baseline.

Pressures involving competing territorial and fisheries claims and energy exploratory rights, as well as concerns over piracy, have resulted in an increased emphasis on the naval domain among the nations of Southeast Asia. The Philippines, Malaysia and Indonesia have each formulated ambitious fleet modernization plans, while Thailand is in the midst of upgrading existing warships and purchasing new offshore patrol vessels designed by BAE Systems Surface Ships and two new frigates designed by South Korea's naval warship builder, Daewoo Shipbuilding and Marine Engineering.

Even Vietnam, which has traditionally emphasized investment in its land forces, is now shifting its attention to the air-sea domain and has turned to its principal supplier, Russia, for six Improved Kilo class submarines, Gepard class frigates optimized for anti-submarine warfare, and over 30 Su-30MK2 long-range maritime-strike combat aircraft. 

Buttressed by a growing economy, Indonesia has begun to invest more and more toward defense as it seeks to fashion a "minimal essential force" capable of performing a host of missions – ranging from conducting counterinsurgency operations to participating in international peacekeeping missions and performing natural disaster relief and offshore and exclusive economic zone (EEZ) protection tasks. After increases in Indonesia's year-on-year defense allocation of 34 percent in 2011, 16 percent in 2012, and 7 percent in 2013, Forecast International expects Indonesia's current defense spending level to nearly double by 2018.

While the spike in anticipated defense investment across the region over the coming years may sound alarming, it should be noted that, on average, the annual allocations toward defense as a percentage of national wealth by the countries of the Asia-Pacific region remain restrained. For instance, both China and India are currently allocating less than 2 percent of GDP toward their militaries. Even countries faced with direct strategic threats such as Taiwan will see their defense spending levels remain largely flat over the coming four- to five-year period, while those largely blessed by geography such as New Zealand will also experience little discernible uptick in military investment. Although Australia's new government has stated the bold intention of increasing the country's level of defense spending to 2 percent of GDP over the next 10 years, many hurdles stand in the way of achieving that benchmark – notwithstanding the fact that the 2013-14 budgetary allocation at about 1.56 percent of GDP represents the lowest such level of military expenditure by the country since 1938.  

"Another point to consider," Darling says, "is that the stated U.S. policy of rebalancing its forces into the Asia-Pacific region – the so-called strategic pivot – may reduce the motivation of its allies to invest more in their own defense. Thus the unintended consequence of U.S. regional policy would be that its strategically aligned allies instead choose to free-ride on the back of U.S. security guarantees – the very thing Washington has often accused its European partners of doing."

"Nonetheless," Darling adds, "it is clear that throughout much of the region, the vicissitudes of respective national economies will not necessarily impede the motivations of political leadership to upgrade their nation's military components. The political willpower to do so is borne out of strategic necessity in countries such as Pakistan, India and South Korea, and a sense of impending threat in Japan and Taiwan. While these countries' budgets may not exactly skyrocket in the near term, dramatic economic slowdowns are unlikely to result in sharp budgetary reductions on the defense side, either."     
   
Forecast International, Inc. (www.forecastinternational.com) is a leading provider of Market Intelligence and Analysis in the areas of aerospace, defense, power systems and military electronics.  Based in Newtown, Conn., USA, Forecast International specializes in long-range industry forecasts and market assessments used by strategic planners, marketing professionals, military organizations, and governments worldwide.  To arrange an interview with Forecast International's editors, please contact Ray Peterson, Vice President, Research & Editorial Services (203) 426-0800, ray.peterson@forecast1.com. Questions regarding sales may be directed to sales@forecast1.com.