In this PERSPECTIVES Viewpoint, we look at joint financing options and possible growth effects of increased defence spending, as well as special features within the European defence industry and their relevance for investors.
Key takeaways:
- In order to quickly become capable of defending itself, while reducing the trade surplus with the U.S., Europe will have to rely on U.S. supplies in the short term. At the same time, Europe needs to consolidate and develop its own defence sector. According to the European Commission, at least 50% of all military procurement is to take place within the EU by 2030 and 60% by 2035.
- According to the Kiel Institute for the World Economy, debt-financed investments in domestic defence technology research and development, and in the production of state-of-the-art military equipment, can increase productivity. Short-term economic stimulus could enable higher long-term economic growth and via positive spillover effects this could lead to increased potential growth.
- European defence stock prices have increased by around 46% in the past twelve months and are no longer cheaply valued. Nevertheless, they are likely to have upward potential in the medium term under a European Defence Initiative. However, investors should also consider sector-specific characteristics when selecting single stocks.
