The increase in defense spending helped support the US economy, which slowed down after the war in Ukraine
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According to gross domestic product data released Thursday, increased federal defense spending helped prop up the U.S. economy, which has slowed over the past year following Russia’s full-scale invasion of Ukraine. This is reported by Bloomberg.
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The increase in defense spending accounted for approximately one-fifth of economic growth in the first quarter — 21 basis points from 1.1% annual GDP growth, according to the report of the Ministry of Trade.
From the second quarter of 2022 to the first quarter of 2023, defense contributed an average of 13 basis points to GDP growth. This is a significant departure from the previous five quarters, when defense spending cuts slowed the economy with an average slowdown of 23 basis points over that period.
The increase in defense spending since the beginning of the war may help explain the resilience of the US economy in the face of the Fed’s aggressive policy, as the central bank has taken measures to reduce inflation, well above the 2% target. Over the past four quarters, GDP increased by an average of 1.6%.
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The $816 billion approved for the Department of Defense this fiscal year is one of the largest peacetime budgets after adjusting for inflation and increasing by $76 billion compared to fiscal year 2022. At the same time, military expenditures in the budget for 2024 will be even higher.
Before the invasion of Russia in Ukraine, US defense spending was partially limited by the budget, which led to temporary financing, which made it more difficult for the Pentagon to conclude new contracts or increase weapons production.
The war in Ukraine focused attention not only on the production of weapons to be sent to the battlefield, but also on increasing the production of ammunition for the United States.
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Source: Ministry of Finance
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