Defence Economic Outlook 2018

While the US and its NATO allies still have a significant advantage in terms of military spending and modern equipment, major powers such as China and Russia are steadily narrowing the capability gap. However, after decades of combating terrorism and insurgencies, the US is currently increasing its capability to counter near peer competitors. Meanwhile, several European countries are striving to increase their national defence capabilities with increased military spending and investments in equipment. Following decades of stagnant or declining defence budgets, this development may present both opportunities and challenges for the European defence industry. In order to assess the European defence industry's response to an increased demand interviews were conducted with representatives from defence companies and other stakeholders. While an increased demand was seen as positive, views on the scope and permanency of this increase varied. Identified challenges to the European defence industry include; increasing US protectionism, emerging competitors, finding skilled and educated labour, a need to support SMEs and the insufficient R&D investment. Together these factors should create added incentive for a continued or increased coordination, cooperation and consolidation within the European defence industry.