AlixPartners Report

Global military spending reaches new records: US leading, Europe growing

Europe has seen an unprecedented increase in military spending (+14% in one year). The challenges of the Space Economy

by Mara Monti

30 July 2024

3' min read

Key points

Perspectives for the defence industry
Global defence industry exports
Space industry challenges
Differences between Europe and the US in the space economy
European Space Agency budget increase

3' min read

Global military spending reached a new all-time high of $2.3 trillion in 2023, marking the sixth consecutive year of growth since 2017. The US remains the undisputed leader, accounting for 38% of global spending but with a stable budget.

Perspectives for the defence industry

Europe, on the other hand, witnessed a paradigm shift with an unprecedented increase in military spending (+14% in one year). Ukraine saw the strongest growth, with a 51% increase, and its military spending will account for more than 36% of its GDP in 2023. Russia saw an annual increase in military spending of 29% in 2022 and 23% in 2023, reaching 6% of GDP. China's military spending also continues to grow, a trend that confirms its 28-year-long strategy of aiming to become the world's counterweight to Western nations.

These are the figures from AlixPartners' annual Aerospace, Defence and Aviation Outlook 2024 report, according to which the defence industry will continue to grow in 2024 due to increased military spending as a result of ongoing conflicts. Spending on the space economy is also on the rise.

Global Defence Industry Exports

On the global defence industry exports decreased by 3% overall, mainly due to lower exports from Russia (-53%) and China (-5%). In contrast, exports increased from the US (+17%), Europe (+5%) and the Asia-Pacific region (+13%), led by South Korea.

Germany and France are among the top five export nations (plus the UK, Spain and Italy), together accounting for 27% of world exports. While France increased its export by 47%, Germany reduced it by -14%, widening the gap between the two nations. Growth is expected in all segments, but is particularly pronounced for missiles and artillery. However, European countries are strong importers from non-European countries, in particular from the US industry.

Challenges for European Manufacturers

European manufacturers face significant challenges in meeting growing orders, mainly due to the time and cost of sourcing components and the shortage of skilled talent. "Manufacturers are fully aware of their goals and are deploying significant resources to meet an unprecedented increase in production rates, driven by the needs of Russia's neighbours, but also by promised domestic orders that are now materialising," says Paolo Rinaldini, partner and managing director of AlixPartners.

Challenges in the space industry

On another front, that of the space industry, growth is accelerating at a rate of 6.3% by 2023 and today represents a market worth $510 billion, heavily concentrated in the United States.

However, its operators face several challenges: the structural decline of the geostationary satellite market, the development of Low Earth Orbit (LEO) constellations whose business model is not yet established, competition from large integrated operators such as SpaceX but also from innovative start-ups, and the massive increase in funding for space. The war in Ukraine and other geo-political factors are leading to a considerable increase in funding for space programmes, given the increasing focus of world governments and defence agencies on space control.

Differences between Europe and the US in the space economy

Between Europe and the United States, the differences are substantial, again according to AlixPartners: the US market is driven by expenditure of around $60 billion, led by Defence with Space Force accounting for 40% and Nasa for another 40%, with high barriers to entry and large international defence operators very active. Europe, on the other hand, has an expenditure of around $15 billion, a quarter of that of the US, with a more fragmented market and smaller average players.

European Space Agency budget increase

Something is moving in Europe when the budget of the European Space Agency (ESA) has increased by an average of 4.4% per year over the last 10 years, concentrated on earth observation and climate impact programmes. By contrast, the budget of the American space agency, NASA, has increased by 2.5% per year over the last 10 years, less than Europe, but still at almost three times the level of ESA.