European defence: Strategic autonomy drives long-term investment potential
KEY POINTS
Europe is currently navigating a deep structural evolution. To achieve its goal of greater independence and strategic autonomy the region is seeing a systemic shift across its industrial, financial, and geopolitical dimensions.
Following an overly prolonged period of underinvestment the bloc is now rebuilding – and accelerating – investment in its defence capabilities.
Its success depends on advanced technology: artificial intelligence and cyber defence are now vital to military strategy and indispensable for national security.
Consequently, this structural shift is opening a wide range of potential opportunities for investors.
Bigger spenders
Russia’s invasion of Ukraine in 2022 was a wake-up call for the continent; no longer could it underestimate international geopolitical tensions and threats. The war helped drive a sharp rise in NATO spending.
Persistent pressures – more latterly the reemergence of trade wars and the Middle East conflict – are compelling Europe to enhance its strategic autonomy in defence.
Addressing these challenges will necessitate significant investment, amounting to billions of euros, to modernise and expand current industrial capabilities.
Certainly, recent numbers show the European Union is taking defence more seriously than ever, with nations making unprecedented investments in defence.
According to the European Defence Agency’s latest Defence Data report, among the EU’s 27 Member States, defence spending soared to €418 billion in 2025, a significant 20% increase compared to 2024.1
This largesse is projected to rise further to €454 billion in 2026, “reflecting Member States’ continued efforts to strengthen Europe’s defence capabilities and readiness”.2
The report showed that defence expenditure overall represented 2.2% of EU GDP in 2025 – with 23 member states spending at least 2% of GDP on defence – and is anticipated to reach 2.4% in 2026.
And defence investment – encompassing equipment procurement and research and development – is forecast to account for 36% of total defence expenditure in 2026, up from 32% in 2025. Within that, spending on defence R&D is expected to increase from €17 billion in 2025 to €20 billion.3
- {https://eda.europa.eu/news-and-events/news/2026/07/16/eu-defence-spending---418-billion-in-2025--projected-to--454-billion-in-2026}
- {https://eda.europa.eu/news-and-events/news/2026/07/16/eu-defence-spending---418-billion-in-2025--projected-to--454-billion-in-2026}
- {https://eda.europa.eu/news-and-events/news/2026/07/16/eu-defence-spending---418-billion-in-2025--projected-to--454-billion-in-2026}
The investment potential
Given the level of spending on defence, companies that are exposed to this long-term structural theme should potentially benefit greatly from the increased expenditure and development.
One analysis has highlighted that the total market for European defence companies should grow 29% per year until 2030, creating more jobs and further bolstering the sector’s investment case.4
Notably, the European defence industry saw a substantial increase in employment in 2024, with the total number of jobs reaching 633,000 – an 8.6% increase compared to the previous year – and up by more than 20% since 2021.5
According to consultancy McKinsey, under NATO commitments, European defence spending could edge towards €800 billion by the end of the decade, supporting investment across multiple sectors including industrials, technology, and advanced manufacturing.6
And European Commission data shows that additional defence and infrastructure spending alone could lift EU GDP by around 0.5% over two years, with meaningful spill‑over effects for domestic supply chains.7
Ultimately higher national defence spending and commitments support the long-term investment opportunity – with several EU member states rapidly increasing defence spending.8
- {https://www.bnpparibas-am.com/en/portfolio-perspectives/european-strategic-autonomy-a-long-term-investment-opportunity/}
- {https://www.consilium.europa.eu/en/policies/defence-numbers/}
- {https://www.mckinsey.com/industries/aerospace-and-defense/our-insights/european-defense-by-the-numbers}
- {https://economy-finance.ec.europa.eu/economic-forecast-and-surveys/economic-forecasts/spring-2025-economic-forecast-moderate-growth-amid-global-economic-uncertainty/economic-impact-higher-defence-spending_en}
- {https://viewpoint.bnpparibas-am.com/wp-content/uploads/2026/06/15210_BNP-ETF-Defence-Infographic-V5-26JUN26-009-v7-1-1-scaled.jpg}
Looking ahead
Fundamentally, Europe is undergoing a significant shift in its approach to security.
To achieve strategic autonomy Europe is strengthening its capabilities in a vast range of areas – especially in terms of upgrading its technology, with spending rising in multiple areas including cyber, drones, radar and air defence.
In addition, procurement agreement and government contracts should help support revenue growth, providing visibility of long-term spending plans.
This combination of greater defence expenditure, rising budget allocations, focused technological integration, and government procurement contracts has created a compelling, and long-term, structural investment case.
As the bloc pursues strategic autonomy, the defence sector – and its broader supply chain in technology and advanced manufacturing – looks well-positioned for sustained growth.
Disclaimer
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