Understanding the true scale of additional defense spending, as well as the areas to which it will be allocated, is important for multiple stakeholders. These are watershed moments for Europe and for the alliance. It has also applied for NATO membership, as has Finland. ![]() Similarly, Sweden now plans to spend 2 percent of GDP on defense. This might entail a significant funding increase, as the country has had one of the lowest European defense budgets in terms of GDP percentage since the Cold War ended. Austria is considering establishing a near-term, fixed GDP spending target for defense that would be higher than previous levels. Some countries outside the NATO fold have also reevaluated their security postures and relationship with the alliance. The country may potentially add additional funding, which could bring the 2023 defense budget to above 4 percent of GDP. Poland, for example, set a defense budget of 2.4 percent of its GDP for 2022 and plans to increase it to 3 percent in 2023. Other European NATO countries have announced similar plans. 2 “Defence expenditure of NATO countries (2014-2022),” NATO Public Diplomacy Division press release, June 27, 2022. This is a major shift, considering that the country’s military spending, as a percentage of GDP, averaged 1.3 percent between 20. Take Germany, which announced in February 2022 that it would spend an additional €100 billion on defense. With Russia’s invasion of Ukraine, many European nations have now committed to meeting or exceeding the NATO target-in some cases, years before they originally planned to do so. But even with this growth, many countries did not follow NATO’s guideline that each nation should spend 2 percent of its GDP on defense-a target set in 2006. 1 Nominal growth according to NATO statistics. Defense funding has been rising in recent years in many European countries, in part because of NATO calls for increased spending and NATO members’ commitment to that end, resulting in a compound annual growth rate of 6 percent between 20. The planned increase in European defense spending does not represent a reversal in long-term trends. A new outlook on European defense spending This model of potential spending scenarios could prove useful as European nations consider new strategies to ensure security, while making difficult choices on budgeting priorities. To assist industry stakeholders, including governments and companies that may supply critical products and services, we created a model to estimate how European defense budgets might evolve through 2026 and identified areas that might receive an influx of funds during this period. U.S.This article is a collaborative effort by Georgiana Cavendish, David Chinn, Nadine Grießmann, Hugues Lavandier, and Tobias Otto, representing analysis by McKinsey’s Aerospace & Defense and Social, Healthcare, and Public Entities Practices. military spending/defense budget for 2018 was $682.49B, a 5.53% increase from 2017. military spending/defense budget for 2019 was $734.34B, a 7.6% increase from 2018. ![]() military spending/defense budget for 2020 was $778.40B, a 6% increase from 2019. military spending/defense budget for 2021 was $800.67B, a 2.86% increase from 2020. ![]() Such expenditures include military and civil personnel, including retirement pensions of military personnel and social services for personnel operation and maintenance procurement military research and development and military aid (in the military expenditures of the donor country). Military expenditures data from SIPRI are derived from the NATO definition, which includes all current and capital expenditures on the armed forces, including peacekeeping forces defense ministries and other government agencies engaged in defense projects paramilitary forces, if these are judged to be trained and equipped for military operations and military space activities.
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