Europe Defense Market - Growth, Trends, COVID-19 Impact, and Forecasts (2022 - 2027)

Europe Defense Market - Growth, Trends, COVID-19 Impact, and Forecasts (2022 - 2027)

The European Defense market is anticipated to record a CAGR of more than 3% during the forecast period (2022-2027).

The COVID-19 pandemic did not have a largely negative impact on the market. Owing to various political circumstances across the region, the military expenditure across major countries of the region increased, leading to increased procurement of defense vehicles, arms, armament, and several other weapon systems need for the protection of international borders in the region.

Furthermore, the military conflict running between Russia and Ukraine since 2014 escalated to start a war, that led Russia to invade Ukraine in February 2022, drastically affecting various defense strategies and expenditures across the European region. The countries closer to Russia ramped up their defense expenditure and procurements with the looming threat from Russia, significantly increasing revenue influx to the European Defense market.

Key Market TrendsEnhanced Defense Spending Closely Linked to Defense Sector Growth

As per the Stockholm Peace Research Institute (SIPRI), the European region spent a total of USD 417.8 billion on military expenditure in 2021, making it one of the largest military spending regions in the world. Additionally, Russia, France, Germany, the UK, and Italy have consistently ranked among the highest global defense spending nations each year, signifying substantial investments in the R&D of advanced weaponry and procurement of sophisticated military assets. For instance, the French Navy is planning to induct a new aircraft carrier to replace the in-service Charles de Gaulle aircraft carrier. The trials are expected to begin in 2036, with the official induction scheduled for 2038. In 2019, the British Army unveiled a demonstrator for a new version of its Challenger 2 main battle tank (MBT). The Streetfighter II concept vehicle includes an Israeli-manufactured distributed vision system that adds cameras to the tank’s hull for enhanced 360-degree battlefield awareness. Several such development programs are currently underway in most European nations, thereby creating a positive outlook for the market studied, during the forecast period.

Russia to Dominate the Market During the Forecast Period

The Russian leadership has developed a political-military strategy for the armed forces based on its security policy goals and threat perceptions. This strategy involves the military carrying out five key tasks: strategic deterrence, regional dominance within the non-Baltic former Soviet Union, expeditionary operations, preparedness in case of a major war, and domestic stability. Russia is actively inducing the BMPT armored vehicle designed to carry a mix of missiles, light cannons, and machine guns that can engage a variety of targets, ranging from enemy tanks to ground troops. Russia's military conflict with Ukraine has been escalating to war since it first began in 2014. Consequently, in February 2022, Russia invaded Ukraine which led to a global scramble for better defense technologies. Russia also factored for a significant increase in defense equipment production owing to its need for weapons for the war with Ukraine. Russia utilized cluster bombs, rockets, and artilleries to destroy major Ukrainian inventories, thereby driving significant demand for these weapons. The country also deployed multiple Unmanned Aerial Vehicles (UAVs) to drop bombs over army bunkers and weapon storage. In August 2022, the Russian military fired 5 Kalibr cruise missiles at the Black Sea, while increasing artillery shelling nearby and across Ukraine's nuclear power plants. Major such weapon deployment is expected to create demand for advanced weaponry from the country. Furthermore, with the war expected to last over a long time, the demand for defense systems from Russia is expected to witness a significant growth rate during the forecast period.

Competitive Landscape

Several factors militate against the European defense industry’s collaborations, such as domestic procurement regimes organized to ensure privileged access for favored national firms. The EU member states prefer domestic companies. Hence, around 80% of their defense equipment is sourced domestically. In a pursuit to achieve strategic autonomy, the EU nations are required to tackle a considerable lack of interoperability among weapon systems and the wasteful inefficiency of defense investments. The European Defence Agency’s (EDA’s) Defence R&T Joint Investment Program has proved its mettle in certain areas, such as force protection. BAE Systems, Rostec State Corporation, Indra, Leonardo S.p.A., Airbus SE, Ukrobornprom, and United Aircraft Corporation are some of the major defense manufacturers within the region, catering to the market demands. Europe also has partnerships with international defense manufacturers including with companies like Lockheed Martin Corporation. Lockheed is a major partner for the region to provide fighter jets and other defense technologies and benefits from over 650 suppliers across 26 countries of Europe. The competition among the players in this market is extremely high and the market is fragmented among multiple providers both domestic and international in the region.

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