Defence, imports meet one third of Italy's military equipment needs
Regarding the impact of an increase in defence spending on growth, the Via Nazionale institute outlines two scenarios
by Andrea Carli
Key points
The Italian defence industry is looking to new markets, but one third of our country's military equipment needs are met by imports. This is one of the aspects highlighted by Bankitalia in the Annual Report, released on Friday 29 May.
The document takes a snapshot of the structure of the defence supply chain and the macroeconomic impacts of increased spending. The first element that is highlighted is that the private defence sector is characterised by a strong propensity to export (58 per cent of sales), mainly to non-European countries, against largely domestic purchases (72 per cent, equally distributed between manufacturing goods and services). Approximately one third of Italia's military equipment requirements, explains the Via nazionale institute, is however met through imports. Italia buys around 30 per cent of its military equipment from foreign suppliers (the United States in particular).
As regards the effects that increases in defence spending have on growth, Bankitalia outlines two scenarios in the document. The first, the basic one envisages a permanent increase in defence spending equal to 0.5 per cent of GDP, aimed at domestic producers, with procurement of intermediate goods also on the foreign market and with the current equal division between personnel and armaments spending. In this context, the Via nazionale institute explains, R&D investment in the entire economy would increase by 0.6 per cent and potential output by 0.01 percentage points over ten years, against an annual rate of change in potential output that, according to the estimates in the 2025 Public Finance Planning Document, averages just over half a percentage point over the next five years.
The second, alternative scenario assumes a permanent increase in expenditure of 1.5 per cent of GDP, in line with NATO targets. It also assumes that only one third of the additional resources are absorbed by personnel. In this case, business R&D investment would rise almost fourfold compared to the baseline scenario and so would potential output. More pronounced effects would emerge if procurement were oriented towards R&R-intensive companies or accompanied by an increase in direct public spending on R&R, which, even if carried out for military applications, can have positive externalities on the private sector and on potential growth.
12.2 billion more will be spent in 2028 than in 2025
The trend is clear: the deterioration of the geopolitical context has led European NATO member countries to plan an increase in defence spending, with the aim of raising it to 3.5 per cent of GDP by 2035. For Italia, in October, the government assessed that it is realistic to increase spending for this purpose by an amount that could reach a total of 0.5 percentage points of GDP in 2028 (around EUR 12.2 billion more than in 2025).
