The Europe defense market is anticipated to grow at a CAGR of more than 3% during the forecast period.
- As per the 2016 Global Strategy, Europe seeks to attain strategic autonomy by 2025. Thus, the European Union (EU) nations have undertaken a multifaceted modernization program to achieve a higher degree of military capability.
- However, the complexity of international security challenges has become more prominent, and the economic recession in the wake of the COVID-19 pandemic is envisioned to force governments to make difficult choices in their defense budgets that will greatly affect their near- and long-term military capabilities.
Key Market Trends
Enhanced Defense Spending Closely Linked to Defense Sector Growth
As per SIPRI, military spending in 2019 witnessed a 5% YoY growth to reach USD 356 billion and account for 19% of the global military spending. Additionally, Russia, France, Germany, the UK, and Italy have consistently ranked amongst the highest global defense spending nations each year, signifying substantial investments towards 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 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 nations in Europe, thereby creating a positive outlook for the market in focus 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’s 2019 defense expenditure amounted to USD 65.1 billion and was mainly focused on long-range strikes, C4ISR, and air defense capabilities to strengthen strategic deterrence. In April 2020, the Russian design bureau Military Industrial Company (MIC) initiated battlefield testing on the latest VPK-Ural armored vehicle, designed to transfer a maximum of 12 fully geared personnel safely on the battlefield. In the event of successful testing, MIC could be awarded a contract under the Russian military’s rearmament program to 2027. 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.
Several factors militate against the European defense industry collaboration, such as domestic procurement regimes organized to ensure privileged access for favored national firms. The EU member states prefer domestic companies and hence around 80 percent of their defense equipment is sourced domestically. In the 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. The program can be used more intensively and broadly by increasing investments at all levels of defense-based research. Furthermore, the scope of dual-use technology requires to be explored to ascertain its full potential. The upcoming defense proposals of the EU nations are envisioned to systematically explore the potential of combined civilian and military capabilities.
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