USA's Growing Fiscal Deficit is Expected to Negatively Impact the Defense Budget

US defense expenditure, valued at US$645.7 billion in 2012, registered a CAGR of -0.77% during the review period (2008-12). The country’s growing fiscal deficit is expected to negatively impact the defense budget, and consequently, domestic military expenditure is expected to register a CAGR of -0.12% over the forecast period (2013-17), to reach a value of US$611.0 billion by 2017. Although the country’s total defense spending is likely to decrease, factors such as the potential nuclear threats posed by North Korea and Iran, modernization initiatives, and strategies to maintain military supremacy and protect its allies will continue to drive the US defense budget. Cumulatively, the US is projected to spend US$3.0 trillion on its armed forces over the forecast period.

During the review period the US allocated 4.6% of its gross domestic product (GDP) to defense; however, this figure is forecast to decline to 3.1% by 2017 due to defense budget cuts as a consequence of the global financial crisis.

During the review period, revenue expenditure accounted for the majority of the nation’s military spending. Overall, the US spent an average of 61% of its defense budget on revenue expenses during this period, while an average of 39% was reserved for capital expenditure. This was due to the termination of procurement programs such as Global Hawk Block 30, C-27J Joint Cargo Aircraft, and the C-130 Avionics Modernization program, as well as the restructuring of major programs such as the Joint Strike Fighter, Ground Combat Vehicle Program, and Joint Air-to-Ground Missile (JAGM) program. As a consequence, the share of capital expenditure in the overall defense budget is expected to decline to an average of 35.1% over the forecast period.

In order to counter the threats posed by global terrorist organizations, organized crime gangs, and cross-border infiltration, the nation’s homeland security budget is forecast to reach US$63.7 billion by 2017. As the US seeks to enhance its aviation and border security, the demand for equipment relating to these categories will increase. Further opportunities are expected to arise as the US invests in communication systems, the modernization of its aviation, naval, and land defense systems, and the enhancement of its nuclear defense capabilities.

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Source: ASDReports - Market Research
Date: Feb 25, 2013