Can Europe’s Military Spending Boost Economic Growth?
Europe is increasing its defence spending, with Germany leading the way. Economists say this could give the economy a small boost, but the benefits may take time to appear, and structural challenges could limit the impact.
European governments are planning to spend more on the military for the long term, raising an important question: can this “rearmament” help the economy, especially when the eurozone is struggling to grow?
Germany is at the center of this change. Berlin plans to raise defence spending from 2.1% of GDP in 2024 to nearly 3.5% by 2029. This would be one of the largest military investment programs in Europe since World War II. By 2029, Germany aims to spend more than €100 billion a year on defence equipment and maintenance.
Economists say this could have a noticeable effect on growth. Niklas Garnadt, an economist at Goldman Sachs, said, “We expect defence spending to increase Germany’s GDP in 2029 by about 0.8%. Defence orders already picked up strongly in the last months of 2025 after the new budget was approved.”
Once parliament approves the defence budget, large contracts go to manufacturers, which are counted in official factory orders. Domestic German orders for defence-related industries rose by over 50% in late 2025 compared to earlier levels, which were already high following Russia’s invasion of Ukraine.
Defence spending supports the economy in several ways. On the production side, it increases value added in defence factories and their supply chains. On the spending side, government purchases of weapons, ammunition, and equipment count as investment and help boost GDP. “We expect defence spending to lead to stronger growth in government equipment investment going forward,” Garnadt said.
Eurozone economic outlook
Goldman Sachs expects modest growth in the eurozone in 2026. They forecast 1.3% GDP growth for the bloc, slightly higher than the European Central Bank’s estimate. This growth is expected to come from government spending, resilient consumer demand, and easing trade tensions.
Germany’s defence-driven fiscal push is likely to counteract economic slowdown in other areas, helping stabilise the eurozone. Lower energy prices and rising wages could further support household spending. A potential ceasefire in Ukraine might reduce energy costs, giving another boost to growth.
However, there are limits. Defence production has long delivery times, often taking four to five years to complete large orders. This means the impact on GDP is slow rather than immediate. Experts also warn that higher military spending alone cannot solve Europe’s long-term problems. Challenges like competition from China, high energy costs, underinvestment in technology, heavy regulations, and ageing populations continue to weigh on growth. Garnadt notes, “China’s export push may hurt European trade, especially for Germany and Italy, through rising imports and stronger competition for exports.”
A boost, but not a solution
Military spending is becoming both a strategic priority and an economic tool for Europe. While it is unlikely to transform Europe’s long-term growth, it can provide a meaningful short-term lift. For countries like Germany, where manufacturing is key, defence spending could stimulate the economy, particularly amid challenges in industrial competitiveness.
Whether this trend will last remains uncertain. For now, defence investment is an unexpected driver in Europe’s slow and uneven economic recovery.
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