Quick shot: Germany seeks more robust defense spending

Oktoberfest is over six months away, but some investors are breaking out their stein glasses in a toast to defense-oriented stocks after Germany’s Chancellor in-waiting Friedrich Merz announced plans for an unprecedented fiscal package, including:

On the heels of the U.S. announcing it will temporarily suspend military aid to Ukraine, adjusting these constraints could be essential for enabling increased defense spending in Germany (and the broader Euro Area). The European Commission has unveiled its “ReArm” Europe package that may free up close to 800 billion euros in funding for defense and security across the bloc. As part of the proposal, countries in the bloc could have access to loans of up to 150 billion euros for defense investment.

If passed, the fiscal package could boost Germany’s and Europe’s economic growth. Following this news, European defense companies have outperformed broader European equities, which aligns with our thoughts in our 2025 Outlook that global security spending has room to grow, as governments will likely deliver higher levels of capital investment into their national security.

With U.S. equities seeing some recent turbulence and the S&P 500 essentially flat year-to-date, the recent developments in Europe highlight how a globally diversified mix of equities could help portfolios navigate an ever-changing economic landscape.

All market and economic data as of 03/05/25 are sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

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