Since Russia’s invasion of Ukraine, all countries have been reassessing their defence spending and things that may have seemed like an impossibility just a few months ago (Germany supplying arms to a conflict zone or Finland & Sweden joining the NATO alliance) are now the “new normal” and being taken very seriously! Sadly, the largely “war-free peace period” since 1945 has been shattered and Governments are having to reassess what this means to their own security.
With the NATO block potentially strengthening and adding members (Sweden and Finland), a principle of being a member commits member nations to spend 2% of their GDP (Gross Domestic Product = the entire value of an economies goods and services, therefore the size of a countries economy). According to a NATO report published in 2018, only 6 European countries were spending above the threshold (Estonia, Greece, Poland, Latvia, Lithuania & UK). Bear in mind there are 27 European members including economic heavyweights of France, Germany, Italy & Spain so there is quite some way to go! Germany for example is still haunted by its past (WW1 and WW2) so is historically very cautious however, it has already announced a boost from 47 billion euros in 2021 to 100 billion euros in 2022! Wow – doubled its budget!
Further afield, Japan (worried by China) has announced an increased and record defence budget and Australia (again worried by China) has boosted spending by one-third. Simply put, all this means lots more money pouring into the defence sector which is dominated by US, British and French companies!
So, what does this mean? In these uncertain times it is a sure bet that defence spending is going to literally rocket! The thing with defence is it is very technology driven and means that countries constantly need to upgrade and buy the latest equipment to ensure their troops can compete regardless of what threats may emerge. This situation bodes well for companies like our very own BAE Systems, Rolls-Royce & Babcock and also American industry leaders like Lockheed Martin, Boeing, Northop Grumman and Raytheon.
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