ECONOMIC IMPACTS OF DEFENCE SPENDING IN EUROPE: BETWEEN GROWTH AND FISCAL BURDEN

Lubos Komarek, Mikulas Zeman and Petr Polak

A chapter in GLOBAL ECONOMIC OUTLOOK OCTOBER 2025, 2025, pp 16-20 from Czech National Bank, Research and Statistics Department

Abstract: Defence spending is a standard component of public expenditure in Europe and elsewhere. However, Russia's invasion of Ukraine in February 2022 fundamentally changed political priorities and led to a dramatic increase in defence spending and defence budget plans across the NATO and EU member states. European countries are making gradual progress towards fulfilling their long-term commitment to spend 2% of GDP on defence – a target that many NATO countries had previously met only marginally. This elevated growth towards 3% of GDP and beyond is not only sparking a political and security debate, but also raising questions about the macroeconomic impacts and multiplier effects that such spending generates. Examining the economic aspects of defence expenditure is crucial not only for assessing the effectiveness of security policy, but also for understanding the broader impacts on economic growth, employment and innovation. This article sets out to summarise how current trends in the area of defence budgets will affect the functioning of the European economy.

Date: 2025
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