Forecast Predicts Rising Defense Spending and Strained Civilian Budgets Through 2035
TL/DR –
The Professional Services Council (PSC) has forecasted that defense spending will continue to rise through 2035 at roughly 2% annually, while civilian agencies will face years of flat or shrinking budgets and pressure to cut back. The PSC also noted a strategic realignment in Pentagon priorities, with increasing emphasis on the Northern Command and Southern Command, signifying a greater focus on homeland and border security and an expanded presence in Latin America and the Caribbean. However, the outlook highlighted uncertainties in areas such as operations and maintenance funding, sustainability initiatives, and research and development spending, which is increasing only in areas related to advanced weapon systems, technologies, drones and energy.
A new forecast suggests that defense spending will continue to rise through 2035, while civilian agencies face potential budget cuts and heightened pressure to scale back.
The Professional Services Council’s federal market forecast predicts that defense spending will rise around 2% annually after its first $1 trillion budget in fiscal 2026, while cuts will most likely affect civil agencies until a shift in power occurs.
“The next decade will see a tight, competitive fiscal environment. It’s crucial to keep your customers close and your congressional supporters closer,” says Mike Riley of the PSC’s Vision Federal Market Forecast.
Defense stakeholders revealed a strategic realignment in the Pentagon’s priorities with a greater emphasis on homeland and border security as well as increased presence in Latin America and the Caribbean.
Jason Dombrowski, a PSC volunteer, noted that trends like deterring China, integrated deterrence, and border security are ongoing, but the lack of clarity about future directions raises concerns.
Acquisition reform
The Defense Department is also implementing Defense Secretary Pete Hegseth’s broad acquisition reforms, emphasizing competition, speedier delivery and commercial technology adoption. However, the ability to implement these changes amidst deep cuts in contracting personnel is uncertain.
“Adaptability is paramount, whether in contract drafting, supply chain management, or workforce planning,” comments Jim Kainz, a PSC volunteer.
Winner and losers
Dombrowski and Kainz identified some “losers” in this year’s defense outlook, including the department’s buying power, which is waning due to inflation and reshoring efforts driving up costs across the board. Also, operations and maintenance funding remain uncertain.
Research and development spending is set to increase, particularly in areas related to advanced weapon systems, technologies, drones and energy.
“The contracting community will likely bear more responsibilities,” says Dombrowski, hinting at a move towards private sector involvement in areas like avionics, business process systems, and back-office systems.
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