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BERLIN, Aug.16 (Xinhua) – Germany is increasing defense spending to levels not seen in decades,hoping a thriving arms industry will boost national security and revive an economy experiencing two years of contraction [[1]]. Experts note that this boost may be fleeting and moderate, as arms output is unlikely to lead to lasting economic momentum, warning that relying on defense as a growth engine could deepen structural imbalances [[2]].
POLICY SHIFT
For decades, Germany’s largest economy has relied heavily on exports, particularly in the automotive and machinery sectors, a model vulnerable to soaring energy costs, supply chain disruptions, and trade frictions [[3]]. Recent U.S. tariff offensives have added further uncertainty, with German exports to the united States falling for three consecutive months, reaching their lowest since February 2022.
In an unusual move, the Bundestag, Germany’s lower house of parliament, approved on March 18 a historic easing of the country’s debt limit to enable higher defense spending, allowing Berlin to raise defense expenditure to 3.5 percent of gross domestic product (GDP) by 2029, or 162 billion euros (187.92 billion U.S. dollars), a sharp increase from the 2 percent North Atlantic Treaty Association (NATO) quota it met in 2024 for the first time in three decades.
Chancellor Friedrich Merz has envisioned building up “the strongest conventional army in Europe” amid the Ukraine crisis, and also pressure from U.S. President Donald Trump triggering concerns across Europe about Washington’s security commitments and encouraging Europe to boost its defense capabilities.
Embarking on its largest military buildup in decades,Germany plans to spend around 83 billion euros (96.28 billion dollars) on defense in 2026, up about 55 percent from 2025, resulting in a wave of large arms procurements.The defense ministry is preparing more than 60 orders for parliamentary approval by the end of this year, including 20 Eurofighter jets from a consortium of Airbus, London-based BAE Systems, and Rome-based Leonardo, as well as thousands of Boxer armored vehicles from Rheinmetall, the largest German and fifth-largest European arms manufacturer.
ECONOMIC LIMITS
Germany’s policy shift has reshaped the outlook for its defense industry, which contracted sharply after the Cold war. Economy Minister Katherina Reiche described the industry as an indispensable but long-time underestimated component of economic resilience as well as a potential major engine of recovery amid broader stagnation.
despite the defense boom, economists remain cautious about its economic impact. The gross domestic product (GDP) multiplier for military investment is limited, at roughly 0.5, said Tom Krebs, an economics professor at the University of mannheim. That means every euro spent generates only around 50 cents of additional economic activity. By contrast, investments in infrastructure, education, and childcare can double or even triple the return on investment.
Moreover, a surge in military orders is more likely to grow arms companies’ profit margins rather of boosting economic growth, Krebs added, warning the oligopolistic nature of the defense market could inflate prices without strict oversight.
Experts also highlight structural constraints of defense projects, with long production cycles, years of training, and highly automated production limiting short-term employment gains.Zheng Chunrong, director of the German Research Centre at Tongji University, said that greater arms spending could help offset losses in other sectors, but overall economic gains could be limited as companies outside the defense sector switch to arms production. “Defense spending cannot be sustained indefinitely,” he said. “Relying solely on military stimulus will not boost lasting growth.”
