During the recent NATO discussions, considerable attention was given to the defense spending guideline of 2% of GDP by 2024 for each of the 29 member nations. As of July 1, 2018, only the US, UK, Greece, Estonia and Poland allocate at least 2% of their GDP to defense. It is expected that this number will grow to eight countries by the end of 2018 and will potentially reach 14 countries by the 2024 self-imposed deadline. While President Trump is pushing our NATO allies to increase their spending, in 2Q 2018, Congress and the President passed a budget that increased US National Topline Defense Spending from FY 2017 $634 billion to the FY 2018 $701 billion representing 3.5% of GDP, and up from the 3.3% of GDP spending level of FY 2017. Additionally, the FY 2019 appropriation is scheduled to increase defense spending to $716 billion. This $15 billion increase is consistent with the current rate of inflation and, given the expected increase in US GDP, the defense budget will likely drop to 3.4% of expected GDP.
Moving beyond the Topline number, there remain challenges and difficult choices to fund all the priorities for personnel, operations and maintenance, research and development and the overseas contingency operations. On an inflation-adjusted basis, the case has been made that the 1986 defense budgets were greater, and funded more troops, munitions and equipment – all of which are much more expensive and sophisticated in 2018, after 30 years of developments in manufacturing and technology developments. Looking at the defense budget from a different angle, the 1986 defense budget was 6.9% of GDP and didn’t include any Overseas Contingency Operations.
Defense and Government contractors are cheering the increased defense spending; but to earn, profitably deliver and renew a governmental contract, a company should focus its business to be a top-tier supplier with mission critical or cutting-edge products and services. LM+Co has worked with government and defense contractors throughout their lifecycle and is ready to assist your company reach its potential.
LM+Co has helped companies, management teams and investors overcome industry headwinds and succeed in this currently difficult, yet vitally important market.