Europe's rearmament push drives global military spending to record $2.9 trillion despite U.S. pullback

• Germany's defense spending jumped 24% to $114 billion, exceeding NATO's 2% GDP target for the first time since 1990, while Spain's expenditure soared 50% to cross the 2% threshold for the first time since the target was established in 1994
• Asia-Pacific spending rose 8.1% to $681 billion, the largest annual increase since 2009, with Taiwan spending up 14% to $18.2 billion amid 5,709 Chinese aircraft incursions in 2025 (versus 380 in 2020)
• Defense stocks rallied globally, with South Korea's Hanwha Aerospace up 193%, Germany's Rheinmetall gaining 154%, and Japan's IHI Corp climbing 107% as governments expanded military budgets and signed major procurement deals

Market Summary: Global Military Spending Reaches Record $2.9 Trillion

Key Figures and Growth Metrics

Global military spending hit a record $2.89 trillion in 2025, marking the 11th consecutive year of increases, though growth slowed to 2.9% from 9.7% in 2024, according to SIPRI.

Regional Breakdown

Europe drove spending growth with a 14% increase to $864 billion. Germany's defense budget surged 24% to $114 billion (2.3% of GDP), exceeding NATO's 2% target for the first time since 1990. Spain's spending jumped 50% to $40.2 billion, crossing the 2% GDP threshold. NATO members have outlined a long-term goal of increasing defense spending to 5% of GDP by 2025.

United States spending declined 7.5% to $954 billion due to halted Ukraine assistance, though the Pentagon has requested $1.5 trillion for fiscal 2027—the largest request in history.

Asia-Pacific spending rose 8.1% to $681 billion, the largest annual increase since 2009. China increased expenditure 7.4% to $336 billion. Taiwan's budget grew 14% to $18.2 billion amid intensifying PLA activity, with aircraft incursions rising from 380 in 2020 to 5,709 in 2025. Japan's spending climbed 9.7% to $62.2 billion (1.4% of GDP).

Market Impact

Defense stocks rallied significantly in 2025. South Korean manufacturer Hanwha Aerospace gained 193%, while Hyundai Rotem surged 278%. European firms Rheinmetall and ThyssenKrupp rose 154% and 215% respectively. Japanese manufacturers Mitsubishi Heavy Industries and IHI Corp gained 72.7% and 107.1%.

The EU plans to spend €800 billion by 2030 on regional security, supporting continued sector growth.