Cuts force rethink for defence contractors Western defence contractors faced a growing struggle to sell their weapons internationally in 2011 as their biggest customers cut back military spending, new data from the Stockholm International Peace Research Institute have found. The deepest cuts happened in the US and its European allies, which buy international weapons from companies such as BAE and EADS of Europe, and Lockheed Martin and Northrop Grumman of the US. Meanwhile, China and Russia, countries largely closed to western defence companies, increased their 2011 military budgets more than any other nations, Sipri data showed. China ranks only second to the US in absolute spending terms and Russia jumped two ranks to number three, surpassing the UK and France. In terms of cuts, even Brazil and India - new markets much touted by BAE and other defence contractors - saw real spending fall in 2011. In Europe, some of the biggest cuts came in countries that have suffered the most painful economic downturn, including Greece, down 26 per cent, Spain, down 18 per cent, and Italy down 16 per cent. In absolute terms the biggest cuts came in the US, Italy, Brazil, India and Germany. The losers are likely to be European defence companies that have failed to diversify their sales away from western and central Europe and those companies most dependent on revenues from wars, said Sam Perlo-Freeman, author of the report. But he noted that defence companies have done exceptionally well over the past decade of war in Iraq and Afghanistan, the US war budget for which may be shrinking, but base levels are expected to remain fairly steady, he said. The base military budget has risen to unprecedented levels and will not fall from those levels. What is going to fall is the direct war spending. Mrap [armoured vehicle] makers might start having problems. Military services companies, such as KBR may be hit. But there could also be more demand for mercenary work as troops withdraw. Meanwhile, purchases by resource-rich countries, such as Saudi Arabia and Norway, have emerged as a new avenue for growth as they have boosted spending on the back of rising oil prices. The oil-rich African nations of Nigeria, Algeria and Angola were also among those countries to increase their military budgets, Sipri data show. "So long as oil prices continue to go up, that may well continue," said Mr Perlo-Freeman.