Germany’s promise to increase its defense budget to 2% of its gross domestic product (GDP) by 2024, with this figure then being sustained as an average across a rolling five-year period, will equate to a defense budget of $82.0 billion in 2024, rising to $85.7 billion in 2027, according to GlobalData. The leading data and analytics company notes that this will result in a positive compound annual growth rate (CAGR) of 5.0% between 2023 and 2027, which is a slower rate of growth compared to the 2018-22 period, which saw a positive CAGR of 7.3%.

GlobalData’s latest report, ‘Germany Defense Market Size and Trends, Budget Allocation, Regulations, Key Acquisitions, Competitive Landscape and Forecast, 2022-2027’, notes that Germany may struggle to spend the planned budget increases unless a reformed approach to the defense industry is implemented.

Madeline Wild, Associate Defense Analyst at GlobalData, comments: “In order to utilize the growth in its defense budget, Germany must review its approach to the defense industry. Currently, there is a lack of a strong defense industrial strategy meaning that the country is not unlocking the full potential of its relationship with the industry.”

Germany releases a short policy document every few years outlining its plan to strengthen the industry. What is lacking, however, is the utilization of the defense industry as a strategic tool: by encouraging investment and funnelling spending into certain areas to promote job growth and economic stimulation. Creating a strong policy would help Germany to spend its new funds effectively, efficiently and have maximum impact on both the capabilities of the Armed Force and feeding back into the domestic economy.

Wild continues: “One problem that Germany faces in this realm is public acceptance. In comparison, the UK released its Defense and Security Industrial Strategy paper last year, which highlighted across hundreds of pages (compared to Germany’s ten) how the Ministry of Defence (MoD) would use and develop the industry in the hopes that the impact would be felt beyond the defense sector. However, the UK public is, on the whole, far more accepting of government support of the defense industry. The German public is relatively more cautious, with a greater focus on arms control.”

Industrial policy review is not the only barrier to spending the new defense funds effectively. Ongoing issues with the procurement department (BAAINBw) have already caused up to 10% of the acquisition budget to go unspent in some years, despite efforts to reform the department.

Wild adds: “Problems within BAAINBw are well publicized, with low staff numbers and overly bureaucratic procedures preventing the effective spending of the defense budget. Successive defense ministers in Germany have tried to address these problems and overhaul the department. Until this is achieved, BAAINBw will continue to act as a significant hurdle for the Bundeswehr.”