Germany’s Economy Set to Benefit as Europe Raises Defence Spending
Germany is set to be the main economic beneficiary among Europe’s large economies as the continent raises defence spending, Fitch Ratings says in a new report.
Fitch projects that Germany’s defence spending will rise by about 1pp of GDP between 2025 and 2028 – about twice the increase of the median European country – using the narrower Classification of the Functions of Government (COFOG) measure.
In June 2025, European NATO countries agreed to increase spending from 2% of GDP to 3.5% by 2035 under NATO’s definition, and to 5% including spending allied to defence.
The macroeconomic impact on Germany is likely to be significant. As with any fiscal easing, higher defence spending should lift output.
Fitch said its additional defence spending in these three years is more than 60% higher than the combined increase in France, Italy and Spain, and equivalent to as much as 0.3% of eurozone GDP.
Germany also plans to finance this largely through higher borrowing, rather than by re-allocating existing spending, adding to the growth impact.
Aside from the way it is being financed, the broader economic benefits of higher defence spending depend partly on how much capacity the economy has in relevant sectors, especially as European countries are now trying to reduce dependence on imported equipment.
France’s large aerospace industry stands out, but Germany has more capacity overall in sectors that are exposed to defence spending.
Industrial sectors where defence spending typically has a material footprint account for about 12% of GDP in Germany, compared with about 7% in France and the UK.
Considered together, Fitch forecasts that the economic boost will be much greater in Germany than in the other large European economies, adding 0.8pp to German GDP cumulatively in 2026-2028. British Health Secretary Resigns as Starmer Faces Leadership Challenge
