NATO Countries Slow to Increase Defense Spending

Despite Russia’s attack on Ukraine, many NATO countries are increasing their defense spending at a very slow pace. In 2023, most of them remain short of the goal of spending 2 percent of their economic output on defense. Only 11 out of 30 countries exceed this mark. “In Europe, the 2 percent target is being reached almost exclusively along NATO’s eastern border. Member countries further in the west are increasing their defense spending only cautiously,” says ifo’s military expert Marcel Schlepper. Compared to 2021, Germany will increase its spending by 0.1 percentage points to 1.6 percent of its economic output, including spending from the country’s special fund for the Federal Armed Forces. This is according to calculations by the ifo Institute.

This puts Germany in 17th place out of 30 NATO countries, plus candidate country Sweden. “In absolute terms, Germany will fall short of the 2 percent target by EUR 17 billion this year. That’s the largest shortfall of all countries,” says ifo researcher Florian Dorn. Excluding the US, NATO countries will spend an average of 1.8 percent of their economic output on defense in 2023. Including the US, the figure is 2.6 percent. That adds up to a total spending of EUR 1.2 trillion.

In 2023, Ukraine’s neighbor Poland will achieve the biggest leap in relation to economic output. The country has almost doubled its proportion compared to 2021, from 2.2 percent to 4.3 percent. This is roughly EUR 17 billion above the target of 2 percent of economic output. At 3.3 percent, the US comes in second in terms of spending, followed by Greece (3.1 percent) and the Baltic countries Estonia (2.9 percent) and Lithuania (2.6 percent). New member Finland spends 2.4 percent. Nuclear powers the United Kingdom (2.2 percent, minus 0.1) and France (1.9 percent, unchanged) are close to achieving the target.

For these calculations, the current budgets of the NATO members were converted according to a systematic approach and then related to the projected economic output, which was based on the International Monetary Fund’s 2023 growth forecasts.

Questions can be directed to: Florian Dorn, 0049 / 89 / 9224 1292, Dorn@ifo.de, and Marcel Schlepper, 0049 / 89 / 9224 1325, Schlepper@ifo.de