The NATO defense market is expected to register a CAGR of over 2% during the forecast period.
- Due to the growing perceptions of threat from Russia and calls from the United States to the NATO countries to increase their defense spending, the NATO countries are increasing their defense spending.
- The increasing deployment of NATO forces in different locations around the world is necessitating the procurement of military vehicles, weapons, and equipment. Around 20,000 military personnel are engaged in NATO operations and missions around the world. Currently, NATO forces are deployed for operations in locations like Afghanistan, Kosovo, and the Mediterranean, among others.
- However, due to Covid-19, several NATO nations are severely impacted economically, which may force them to impose defense budget cuts in the short future. This may challenge the market growth during the forecast period.
Key Market Trends
Growing Emphasis on the Increasing Defense Budgets of NATO Countries
Several NATO countries are now focusing on augmenting their military firepower and defensive capabilities, in the wake of the growing threats from other nations and the increasing deployment of NATO forces to fight insurgent groups in various countries in the world. On the other hand, there is continuous pressure from the US on other NATO countries to increase military spending by at least 2% of their GDP. In this regard, these countries are increasing their military spending, to facilitate the strengthening of their military arsenal. The growth in defense budgets will support the nations to enhance their combat capabilities and help the NATO countries execute their individual and collective defense strategies as planned. According to SIPRI, the total military spending by all NATO member states in 2019 (excluding North Macedonia that joined in 2020) was USD 1035 billion. Out of this, military spending by the United States alone was as much as USD 732 billion in 2019 while the military spending of Germany grew considerably by about 10% in 2019, to USD 49.3 billion. Bulgaria’s military spending increased by 127% while Romania’s military spending increased by 17%. Poland is also increasing its military spending and the country pledged to increase its military spending to 2.5% of its GDP by 2030. Bolstered by the increasing defense spending, the militaries of the NATO countries are continuously undergoing changes, aimed at transforming themselves into more capable, modern, and technologically advanced forces, for which they are procuring various systems aimed at enhancing their training, protection, communications, and weapon systems along with vehicles on different platforms.
The US is Expected to Dominate the Market During the Forecast Period
In segmentation by country, the US held the largest share in the market as of 2019. The country is also expected to show high revenue growth during the forecast period. In 2019, the US military spending grew by 5.3%, thus, reaching USD 732 billion from USD 649 billion in 2018. The United States has the highest military spending in the world, and it accounted for 38% of the total global defense spending in 2019. For 2021, the US defense budget is USD 704.6 billion to improve military readiness and invest in the modernization of armed forces. The DoD (Department of Defense) made investments in hypersonic missile technology and autonomy in military and military electronics, such as sensors, integrated circuits, electronic warfare (EW), and power electronics, among others. The US armed forces, as of 2019, have a fleet of 13,266 military aircraft, 39,253 armed vehicles, and 490 naval vessels, whose aftermarket, upgrade and maintenance revenues are also the highest in the world. In order to enhance its military technologies, the country is investing heavily in the research and development of artificial intelligence (AI). The armed forces are integrating AI for ISR applications, command and control applications, enhancement of autonomy, and improvement of the lethality of weapon stations, among others. Such ongoing developments are expected help the growth in the US defense market in the near future, making the country to dominate the market during the forecast period.
Lockheed Martin Corporation, Northrop Grumman Corporation, General Dynamics Corporation, BAE Systems PLC, Thales Group are some of the prominent players in the market. The market is fragmented with the presence of several manufacturers supplying a wide range of defense equipment to various armed forces present in the 30 NATO countries. Players can make use of the rising opportunities from countries, like Romania, Bulgaria, and Poland, as these countries increased their defense spending in 2019, and are planning for huge scale modernization programs for their military infrastructure. As militaries focus on procuring state of the art defense equipment to gain a competitive edge on the battlefield, the focus on R&D to facilitate product innovations will help the defense contractors to gain new customers, thereby strengthening their geographical presence and market share.
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