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Global defense exports predicted to decline in 2018 on falling energy prices, domestic production

  • Global exports spend set to fall next year
  • Falling energy prices, domestic production cited as reasons
  • U.S. remains clear leader in export of military hardware
An employee works inside the cockpit of a C-17 Globemaster III military cargo jet being manufactured for the Indian Air Force.
Patrick T. Fallon | Bloomberg | Getty Images
An employee works inside the cockpit of a C-17 Globemaster III military cargo jet being manufactured for the Indian Air Force.

Global defense exports could be set to slip for the first time in at least seven years, according to the latest findings from research firm IHS Markit.

"For the first time we are forecasting a decline in our expectations for the global defense export market," said Ben Moores, senior analyst at Jane's by IHS Markit, in a press release Wednesday.

"This is happening for a number of reasons including falling energy prices, increasing domestic production and the world simply pausing for breath after such a long run of increases."

The company says that weakening defense export order backlogs - orders placed but yet to be delivered - are suggesting that there could be a contraction in the market by 2018.

US still the leader

The Global Defense Trade Report found that in 2016, the U.S. remained the highest exporter, supplying $23.3 billion worth of goods, largely driven by its aerospace program.

The IHS report claimed sales of defense products from the U.S. would be supported by sales related to the F-35 jet program.

A U.S. soldier stands guard as a Lockheed Martin F-35 Lightning II aircraft is moved, on the eve of the 52nd Paris Air Show at Le Bourget Airport near Paris, France June 18, 2017.
Pascal Rossignol | Reuters
A U.S. soldier stands guard as a Lockheed Martin F-35 Lightning II aircraft is moved, on the eve of the 52nd Paris Air Show at Le Bourget Airport near Paris, France June 18, 2017.

In the Middle East, Saudi Arabia, United Arab Emirates, Algeria and Iraq kept up the pace of buying, with a combined import spend of $15.2 billion on defense in 2016.

"Saudi Arabia's 2016 imports grew from $4.9 billion to $8.3 billion – an increase that is three times more than the entire Sub-Saharan African market," Moores said.

"As the Middle East has assets against which it can borrow until oil prices recover, we expect to see sustained growth in defense spending for the next few years," the analyst added.

The report identifies Saudi Arabia and India as the top global import opportunities over the coming decade with an estimated $27 and $22 billion of orders expected from each country, respectively.

President Donald Trump has repeatedly called on European states to up their defense spend. IHS claimed military imports throughout Western Europe rose from $7.9 billion in 2013 to $8.9 billion in 2016. This is still some way off 2009's $12 billion peak.

"While we don't foresee a return to pre-2008 import commitments, Western Europe finally saw a return to growth in defense spending in 2015 which will translate into sustained deliveries in the next couple of years," Moores said.

In Eastern Europe, Russia remains a strong exporter with an estimated $6.3 billion of sales across 2016. That number is a slight fall on 2015 but Russia has a strong order backlog stretching to 2020.