German states push defense industry for economic boost

Some states in Germany are making intense efforts to expand the defense industry and rearmament to escape economic contraction.

For example, Baden-Württemberg wants to turn the state into a new industrial hub and is trying to become a “technology leader” in as many defense sectors as possible.

The Saarland government is preparing an “armament summit” and is meeting with leading arms manufacturers to establish new factories.

According to a recent study by the Munich-based ifo Institute, only five federal states achieved economic growth in the fourth quarter of 2024, and in three of these, the rise in the defense industry played a central role.

The hope for a new surge in defense is based on the fact that up to 1 trillion euros in additional spending on armaments will be made in Germany and the EU by 2030.

However, experts warn that it is uncertain whether industrial capacities and existing personnel will be sufficient to convert these sums into actual weapons production. For example, the benefits of taking over previously civilian factories and skilled labor from the weakening automotive industry are being emphasized.

The economic contribution of militarization

Current figures on the economic situation in Germany are giving new momentum to the move towards the defense industry.

According to a calculation published last week by the ifo Institute, only five of the 16 federal states recorded economic growth, albeit quite moderate, in the fourth quarter of 2024.

For three of these (Lower Saxony, Mecklenburg-Vorpommern, and Schleswig-Holstein), the rise in the defense industry played a central role, the institute writes, stating that given the billions of euros expected to be invested in the German Armed Forces (Bundeswehr), the northern German industry is diverging from overall German development thanks to coastal naval shipyards and other armaments facilities.

The three states mentioned above are also located on Germany’s northern coasts.

Growth in these states contrasts with the decline in states where, for example, the automotive industry is traditionally strong (Baden-Württemberg, Bavaria) or where energy-intensive sectors like parts of the chemical industry hold a significant position (Rhineland-Palatinate, North Rhine-Westphalia).

Last week, Lower Saxony State Premier Stephan Weil of the SPD announced that his government would continue to focus on the defense industry and said, “You have to make sure you can do what is possible for your economic structure.”

State governments are engaging with defense companies

Meanwhile, the governments of other federal states have also announced that they are accelerating their efforts to promote defense companies.

At the beginning of March, Baden-Württemberg State Premier Winfried Kretschmann of the Green Party announced that he wanted to “get involved” in the rapid expansion of the defense industry across Europe, stating that the sector should become a new industrial focus in the state.

Kretschmann referred to Diehl Defence, based in Überlingen on Lake Constance, known for its IRIS-T air defense systems, which managed to increase its turnover by 50% in 2024 compared to the previous year, reaching 1.5 billion euros.

The Green politician argued that the entire Baden-Württemberg defense industry should strive for “technological leadership” in the future.

Saarland, bordering Luxembourg and France, is now also clearly focusing on arms manufacturers. Last week, the state parliament adopted a motion submitted by the SPD that foresees making the state more attractive for the defense industry.

It was announced that SPD Economy Minister Jürgen Barke had sent invitations to leading companies in the sector, while SPD State Premier Anke Rehlinger was preparing an “armament summit.”

The AfD parliamentary group is also calling for a determined “door-to-door” approach within the sector.

Militarization of civilian production at full throttle

On the other hand, it is uncertain whether German industry can truly meet the targeted rapid growth in armaments.

One reason for this is the insufficient availability of industrial capacities. Defense companies have begun expanding their factories and building new facilities: For example, Rheinmetall CEO Armin Papperger recently stated, “In Europe, we currently have ten factories whose size we are doubling or building entirely new ones.”

However, this expansion cannot be accelerated at the push of a button as desired. Experts say that German industry can handle “an increase in defense spending,” and if the increase is much higher than that, which is Berlin’s goal, capacities will have to be shifted from other defense-related sectors.

This shift has already begun. For example, the French-German tank manufacturer KNDS announced that it would take over a railway factory from the French company Alstom in Görlitz.

Rheinmetall is also considering buying the Volkswagen factory in Osnabrück. The same company also announced that its facilities in Neuss and Berlin, where vehicle parts for civilian use are currently produced, will be used for military equipment production in the future.

Number of workers in the defense sector is increasing

In the long term, securing the necessary personnel increase in the defense industry may also be difficult. The number of direct and indirect employees in the sector varies.

Klaus-Heiner Röhl, a defense expert at the German Economic Institute (IW) in Cologne, estimates that final manufacturers like Rheinmetall, KNDS, TKMS [ThyssenKrupp Marine Systems], and Diehl currently have about 60,000 employees in Germany; when suppliers are included, this number rises to about 150,000.

The number of employees in the sector is already increasing significantly. For example, Rheinmetall reported having about 26,000 employees at the beginning of 2023; today it has 32,000 personnel and expects at least 40,000 by 2027.

Diehl Defence increased its employee count from just under 3,800 in 2023 to about 4,500 at the beginning of 2025. Hensoldt increased its employee count from less than 6,600 to 8,400 during the same period and plans to hire at least 1,000 more people this year.

Renk, a company producing armored gearboxes, had about 3,300 employees at the end of 2022; today it has 4,000.

Automobile manufacturers are becoming arms manufacturers

Just one year after the start of the Ukraine war, in March 2023, a “talent scout” pointed out that public acceptance of the defense sector was increasing, and interest among applicants was rising.

In addition, an expert from the job platform Indeed recently argued that the large defense spending planned in Berlin “increases employer attractiveness”; according to him, jobs in the arms industry are now considered crisis-resistant.

Defense companies have long been reporting record numbers of applications. Despite all this, insiders are skeptical. An expert from the recruitment consultancy Heinrich und Coll says that “hundreds of thousands of additional positions” will need to be filled and adds that not everyone who applies is suitable in terms of expertise.

Agreements reached by defense companies like Rheinmetall or Hensoldt with automotive companies and suppliers to hire personnel laid off by these companies may help, but it is acknowledged that even this may not completely solve the problem.

The issue of qualified immigrant workers

On the other hand, the personnel problem of the German arms industry has not yet been solved.

Citizens from countries such as Russia, China, Iran, Syria, and Afghanistan are not allowed to work in German defense companies due to their origins.

This situation excludes refugees as well as labor migrants from certain countries of origin who help fill the shortage of skilled workers and other laborers in other sectors in Germany.

For this reason, there is doubt as to whether the increase in development and production output in the sector can be managed with the existing personnel.