Increased federal defense spending has been helping to prop up a slowing US economy over the last year since Russia invaded Ukraine, according to gross domestic product figures published Thursday.
(Bloomberg) — Increased federal defense spending has been helping to prop up a slowing US economy over the last year since Russia invaded Ukraine, according to gross domestic product figures published Thursday.
Higher defense spending accounted for about one-fifth of economic growth in the first quarter — 21 basis points out of the 1.1% annualized increase in GDP — a Commerce Department report showed.
From the second quarter of 2022 to the first quarter of 2023, defense contributed an average of 13 basis points to GDP growth. That’s a sizeable swing from the previous five quarters when declining defense spending was slowing the economy down, with an average drag of 23 basis points over that period.
Higher outlays for defense since the war began can help explain the US economy’s resilience in the face of the most aggressive Federal Reserve tightening in a generation, as the central bank has moved to bring inflation down. GDP has expanded at an average pace of 1.6% over the last four quarters.
The $816 billion enacted for the Department of Defense this fiscal year represents one of the heftier budgets in peacetime, after adjustment for inflation, and an increase of $76 billion over fiscal year 2022. Military spending in the 2024 budget is set to be even bigger.
Before Russia’s invasion, US defense spending was in part limited by budget stalemates in Washington which resulted in stopgap funding that made it harder for the Pentagon to award new contracts or ramp up weapons production.Â
The war in Ukraine has brought a new focus on manufacturing — not only cranking out weapons to be sent to the battlefield, but also boosting munitions production for the depleting US stockpiles.
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