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Global defense spending contracted for the first time in 15 years last year as U.S. and European cuts exceeded rising outlays in China and Russia, the Stockholm International Peace Research Institute said.

In the first decline since 1998, states spent $1.75 trillion on defense last year, or 0.5 percent less in real terms than in 2011, the research group said in a report today.

The U.S. and much of Europe have curtailed military spending as commitments in Afghanistan wind down and governments cut budgets to reduce debt. The White House last week said it is seeking about $615 billion in Pentagon spending for the fiscal year starting in October, about the same as this year, before mandatory spending cuts.

“Military spending is likely to keep falling for the next two to three years,” Sam Perlo-Freeman, head of the research group’s military expenditure project, said in an interview. “Spending will then probably level out and maybe rise again depending to a very large extent on what is happening economically.”

Budget austerity has affected Europe in particular, with 20 of 37 countries in western and central Europe slashing spending by more than 10 percent since 2008, SIPRI said.

“We are seeing what may be the beginning of a shift in the balance of world military spending from the rich Western countries to emerging regions,” Perlo-Freeman said. Military spending in the Middle East and North Africa rose significantly, he said.

China Rise

China, with the second highest level of spending after the U.S., boosted outlays 7.8 percent to an estimated $166 billion, SIPRI said. The country’s military budget has increased 175 percent since 2003.

“The interesting question is to what extent are they going to be able to translate military expenditure into power projection capability,” Perlo-Freeman said. “China in some respects is still well behind Europe even though it now spends as much as Britain, France and Germany combined.”

U.S. spending was $682 billion last year, a fall of 6 percent from 2011, the organization said.

Chinese military spending could overtake the U.S. around 2022, based on growth rates seen in the past decade, said Giri Rajendran, a research associate at the London-based International Institute for Strategic Studies. A slowdown in growth rates could delay the cross over point past 2030, he said.

Biggest Jump

Russian military spending saw the biggest year-on-year jump among the top 15 countries, with growth of 16 percent to about $91 billion, SIPRI said. The third-biggest spender has gone on a modernization spree with the goal of replacing around 70 percent of equipment by 2020, the Stockholm-based group said.

The U.K. was the fourth-biggest spender with $60.8 billion in 2012, down 0.8 percent, while Japan was fifth, with a 0.6 percent decline to $59.3 billion, SIPRI said. France last year slid one position to become the country with the sixth highest defense expenditure with $58.9 billion.

The top 15 countries were responsible for more than four- fifths of all military spending in 2012, with the U.S. alone responsible for nearly two-fifths, the group said.

To contact the reporter on this story: Robert Wall in London at rwall6@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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