European Defense Industry Poised for Decade of Growth
European defense companies are set for a significant boost in revenue, with a surge in defense spending and a shift towards European production. The continent's defense industry is poised for growth, with increased orders and a focus on self-reliance in technology.
Between 2013 and 2021, European defense companies filled about 34% of their backlog each year on average. However, this number is expected to return to historic levels as production capacity increases. Firms exposed to regions with the biggest spending increases, particularly in air defense and land armament, are growing their revenue faster than peers. This growth is particularly notable in countries like Germany, which have historically underspent on defense, and in areas close to perceived threats.
The European Union's defense spending reached a record €343 billion in 2024, with plans to increase it to €381 billion this year. If Europe spends 3.5% of its GDP on defense by 2035, with 35% to 40% spent on equipment, European defense equipment spending would be around 1.2% to 1.4% of GDP, more than double today's levels. This could see the industry's European revenue tripling by 2035, at a compound annual growth rate of 10.5% to 11.5%.
The backlog for a sample set of companies increased to an average 3.9 years of sales in 2023-24, up from three years in the period from 2013 to 2021. This increase is driven by a sharp rise in defense budgets in 2024 and 2025, which is expected to materialize into industry orders in 2025-2026.
The European defense industry is set for a decade of significant growth, with increased spending, a focus on European production, and technological advancements. This growth is particularly notable in countries implementing the EU's 'ReArm Europe Plan/Readiness 2030', driven by an ambitious mobilization of 800 billion euros. This plan aims to strengthen Europe's defense capabilities and reduce dependency on the US, except for nuclear deterrence.
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