Ammunition for Future Growth: Benefits to Defence Sector From Rising European Budgets Will Take Time to Materialise
IndustrialsSummary
European countries are pledging to increase defence spending after the Trump administration's decision to pause all U.S. military aid to Ukraine. We expect this to result in increased revenue and earnings for European defence equipment manufacturers, but we also expect that net new output from the sector will be limited in the near term by manufacturing capacity constraints.
Key Highlights
-- European countries are pledging to increase defence spending, which we expect will result in increased revenue and earnings for European defence contractors.
-- Historical propensity of European militaries to purchase equipment outside of the continent has resulted in an underinvestment in domestic capacity.
-- Positive impacts to the sector will be limited in the near term, with the long-term upside highly dependent on the efficacy and timing of government co-ordination.
"As reduced U.S. support for Europe's security seems increasingly clear, we believe that there will be more impetus for European governments to repatriate their defence spending, where and when possible," said Chloe Blais, Vice President, European Corporate Ratings. "Overall, we see the defence spending pledges as a credit positive for the industry even though the material incremental benefits will take time to be realised."
Available Documents
Enjoying our exclusive insights?
Register for a free account to get unrestricted access to our in-depth research, presale and ratings reports, and more. Access is limited for unregistered users.
Already have an account? Log In