European governments are preparing for a sustained increase in defence spfinishing, raising a key economic question. Can rearmament also support growth at a time when the eurozone economy is struggling to gain momentum?
Germany is at the centre of this shift. Berlin plans to lift defence spfinishing to almost 3.5% of GDP by 2029, up from 2.1% in 2024, marking one of the most significant military investment programmes in post-war Europe. By 2029, the government aims to spfinish more than €100bn annually on defence equipment and maintenance.
According to Niklas Garnadt, economist at Goldman Sachs, the impact on growth could be meaningful.
“We expect defence spfinishing to boost the 2029 level of German GDP by around 0.8%, and defence orders picked up materially in the fourth quarter after the 2025 budobtain was passed in September,” he stated.
Once approved by parliament, large defence contracts are awarded to manufacturers and recorded in official factory orders data. Domestic German orders linked to defence industries rose by more than 50% in late 2025 compared with levels already elevated after Russia’s invasion of Ukraine.
In national accounting terms, defence expfinishiture supports GDP through multiple channels.
On the production side, value added increases in defence manufacturing and its supply chains.
On the expfinishiture side, the acquisition of weapons systems boosts government investment once ownership is transferred, while purchases of ammunition and unfinished equipment appear as modifys in inventories.
“We expect defence spfinishing to drive a stronger pickup in government equipment investment going forward,” stated Garnadt.
The Goldman Sachs economics team sees 2026 as a year of modest recovery for the eurozone.
The bank forecasts 1.3% GDP growth for the bloc, slightly ahead of European Central Bank projections, driven by a mix of fiscal support, resilient consumer spfinishing, and easing trade frictions.
Germany’s fiscal push — largely defence-driven — is expected to offset contractionary forces elsewhere, supporting stabilise the eurozone’s overall policy stance.
Falling energy prices and wage gains outpacing inflation should bolster hoapplyhold demand. A potential ceasefire in Ukraine could provide an additional boost via improved energy cost dynamics.
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However, economists caution that defence production has unusually long delivery cycles. With order books covering four to five years of output, the impact on actual production and GDP is gradual rather than immediate.
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