German defense budget growth to -0.04% by 2026 despite pressure from NATO allies, says GlobalData

Germany’s defense budget growth is set to slow from 2022 in response to the pandemic to register a negative compound annual growth rate (CAGR) of -0.04% by 2026, says GlobalData. The leading data and analytics company notes that is will add to ongoing ill feeling among NATO members about levels of defense spending by the German Government.

GlobalData’s latest report, Germany Defense Market Attractiveness, Competitive Landscape and Forecasts to 2026’, reveals that German defense expenditure is forecast to see minute growth to $58bn in 2026 from the current $57.5bn.

Madeline Wild, Associate Defense Analyst at GlobalData, comments: “The reduced growth rate in 2021 is unsurprising when the domestic political arena and the financial impact of COVID-19 are considered. Germany’s economy shrunk by 1.65% in 2020, according to GlobalData research. Further, Germany has experienced delayed economic pressure, and government funds are being stretched beyond means exhibited in the years prior. Slow growth, levels have remained evident despite pressures from NATO (including Secretary General Jens Stoltenberg) pressing Germany to increase spending.

“The situation is being exacerbated by an overextended general budget. However, other NATO members such as France are increasing their defense spending despite the intense financial impact of COVID-19 and thus some ill feeling may be fostered against Germany: it is one of the richest nations in Europe, yet consistently fails to meet its 2% of GDP on defense spending.”

However, the impact of COVID and sluggish government response to increasing spend are not the only roadblocks.

Wild continues: “Issues with the Bundesamt für Ausrüstung, Informationstechnik und Nutzung der Bundeswehr, which oversees defense procurement, are well publicized and deep set. The department has been labelled inefficient and overly bureaucratic, which has meant that up to 10% of the acquisition budget was unable to be spent in some years. This has been largely attributed to a lack of trained staff causing hold ups and funds getting trapped in bottlenecks.”

Wild adds: “German defense spending is driven by needs to modernize the ageing fleet of the Bundeswehr in line with its allies to operate successfully and coherently within NATO. Several substantial contracts have been signed to push forward the process of modernization, including the funding of the European Future Air Combat System (FCAS), the procurement of over a thousand PUMA IFVs, additional A400M Atlas aircraft and investment into the modernization Eurofighter Typhoon fleet. Despite this, spending levels are still not high enough to placate other NATO members, which are pushing Germany to spend 2% of its GDP on defense.”

Information based on GlobalData’s report: Germany Defense Market Attractiveness, Competitive Landscape and Forecasts to 2026

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