Germany Defence Boom: Big Opportunities for SMEs

German defence boom offers opportunities for SMEs German SMEs Could Take on Large Share of Defence Orders

2026-09-23 From Veronika Maucher 1 min Reading Time

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Germany’s rapidly rising defence spending could create significant growth opportunities for the country’s small and medium-sized companies, according to a study by Hamburg Commercial Bank (HCOB).

SMEs could play a bigger role in defence supply chains in the future.(Picture: AI generated) — SMEs could play a bigger role in defence supply chains in the future.
(Picture: AI generated)

Germany has increased its defence expenditure to one of the world’s largest military budgets within only a few years. Of the €108.2 billion approved for 2026, around two thirds is expected to flow to companies through procurement, maintenance, operating services and construction. The remainder covers personnel costs, internal transfers and contributions to allies. According to a report by Reuters, HCOB expects the defence budget to rise to around €180 billion by 2030, with an increasing share benefiting the industry. However, the ability of German companies to expand production will determine how much of the additional spending remains in Germany rather than flowing to suppliers elsewhere in Europe or the US. Capacity constraints could provide opportunities for SMEs. Major defence contractors have order backlogs worth several times their annual revenues, while production is being constrained by shortages of components and skilled workers as well as lengthy certification and qualification procedures.

More orders passed on to suppliers

HCOB estimates that major systems suppliers pass on up to 80% of their order volumes to suppliers. At the same time, German mechanical engineering SMEs currently generate only around 5% of their revenues from defence. The largest market volumes will remain in platforms such as tanks, frigates and combat aircraft, as well as ammunition and infrastructure. HCOB expects the strongest growth rates in electronics, sensors, software and low-cost mass production. Maintenance, transport, charter and operating services could also offer opportunities for new entrants.

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