The Impact of the War in Ukraine on the European Defense Market

The main trends characterising the European defence market since the beginning of the war in Ukraine are as follows:

• EU countries’ defence budgets globally show a sharp increase in 2023, significantly accelerating a trend visible since 2014.
• Budget increases are particularly steep in Austria, the Baltic states, Finland, the Netherlands, Slovakia, Slovenia, Sweden and Poland, representing a spectacular 46% increase in real terms in the latter from 2022 to 2023.
• Total equipment acquisitions contracted by European countries from 2022 to mid-year 2023 reach close to €100 billion, representing an increase of €21.5 bn (or some 33%) from 2022 to 2023. Some 5% of those are linked to stock replenishments. With military orders in the amounts of some €28 billion and €16 billion respectively, Germany and Poland account for about a third and 17% of the increase.
• Considering that some 70-75% of the acquisitions contracted since 2022 can be linked to purchases initiated after the launch of the war, European defence spending is unlikely to be maintained at the same level beyond 2024-2025. Looking ahead, equipment budgets will depend on a number of factors, including: a) developments on the Ukrainian battlefield and/or at the negotiating table; b) EU countries’ national assessments as to whether the (qualitative and quantitative) capability improvement achieved through the 2023-2025 surge is sufficient; c) and the financial sustainability of the effort – among others in relation to the gradual return into force of the EU Stability Pact as of 2024…