A reduction in war spending and austerity programs were the main reasons the 2012 military expenditure total was 0.5 percent less than 2011, the Stockholm International Peace Research Institute said in a release.
The decrease was the first reported since 1998, the institute said.
China was the second largest spender in 2012, increasing its expenditure by 7.8 percent, or $11.5 billion. Russia, the third largest spender, increasing its expenditure by $12.3 billion or 16 percent.
The United States, with a 6 percent reduction to $682 billion, remained the top military spender, but the institute said the U.S. share of world military spending was less than 40 percent in 2012 for the first time since the fall of the Soviet Union.
"We are seeing what may be the beginning of a shift in the balance of world military spending from the rich Western countries to emerging regions, as austerity policies and the drawdown in Afghanistan reduce spending in the former while economic growth funds continuing increases elsewhere," said Sam Perlo-Freeman, director of SIPRI's Military Expenditure and Arms Production Program. "However, the USA and its allies are still responsible for the great majority of world military spending. The NATO members together spent a trillion dollars."
The institute attributed most of the reduction in military spending to reduced war spending in the United States and to austerity policies in most of Europe in 2012, the institute said.
"All the indications are that world military spending is likely to keep falling for the next two to three years -- at least until NATO completes its withdrawal from Afghanistan at the end of 2014," Perlo-Freeman said. "However, spending in emerging regions will probably go on rising, so the world total will probably bottom out after that."