Live Markets: Germany's defence spending: a new engine for manufacturing?

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08/10/2025 16:44

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GERMANY'S DEFENCE SPENDING: A NEW ENGINE FOR MANUFACTURING?

Germany's manufacturing sector may be entering a new phase driven not just by cars or chemicals but by defence, an analysis from Deutsche Bank showed amid Berlin's renewed military focus.

In a note led by chief economist Robin Winkler, Deutsche Bank argues that defence is likely to be the next growth driver for German manufacturing, backed by a wave of procurement orders starting this month.

German manufacturing has been shifting away from energy-intensive sectors toward R&D-heavy, low-energy industries like electronics, pharmaceuticals, and aerospace. The analysis of over 70 sub-sectors shows that while traditional sectors have been in decline since 2018, innovation-led segments are stabilizing.

Defence spending fits squarely into this transformation. Rather than focusing solely on weapons and ammunition, Deutsche Bank tracks the broader "defence cycle" including dual-use sectors like optical equipment and aerospace.

Their analysis shows that defence-linked activity already accounts for around 10% of the manufacturing cycle, and it's been outperforming the broader sector since the pandemic.

Momentum may be building again. The defence-specific component of the cycle has remained resilient, and upcoming procurement plans could provide the next push.

With most orders expected to benefit domestic and European suppliers, the ripple effects could be felt across multiple high-tech sub-sectors.

(Amir Orusov)

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