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Global Defense Spending Reaches a New Peak as Military Balance 2025 Highlights Industry Adaptation to a Changing Landscape.
On February 12, 2025, the International Institute for Strategic Studies (IISS) released its annual report, The Military Balance 2025, a key reference for analyzing global defense trends and military capabilities. The report highlights a continued rise in defense budgets, reflecting states’ efforts to strengthen their armed forces in response to evolving security challenges. The ongoing war in Ukraine, increasing tensions in the Middle East, and the expansion of defense industries in Asia and Europe have played a significant role in shaping this trend, prompting governments to reassess their procurement and production strategies.
Anduril Industries announced plans for a major facility dedicated to manufacturing thousands of drones and autonomous systems annually, relying on standardized production methods to reduce lead times. (Picture source: Anduril)
This edition of The Military Balance also examines changes in the defense sector, including the growing integration of advanced technologies and the restructuring of industrial supply chains. Traditionally characterized by long production cycles, the defense industry is now facing the need for greater responsiveness. In the past, military procurement operated on multi-year schedules, limiting the ability to react to conflicts and crises. Today, production methods are being adapted to meet rising demand, incorporating automation, artificial intelligence, and additive manufacturing.
Challenges related to the supply of ammunition and armored vehicles are particularly evident in Europe, where several countries are working to rebuild stockpiles that had been depleted due to budget constraints in previous decades. The war in Ukraine has exposed structural weaknesses in European militaries, particularly in artillery and armored vehicle production. In response, companies such as Rheinmetall and KNDS are investing in expanded production capacity. The manufacturing of 155mm artillery shells, for instance, is increasing, with some European firms aiming to reach an annual output of one million rounds by 2026.
In the United States, the need to modernize the defense industry was emphasized as early as 2024 by Kathleen Hicks, then Deputy Secretary of Defense. The COVID-19 pandemic and recent conflicts highlighted supply chain vulnerabilities and the difficulty of meeting urgent military requirements. To address these issues, several U.S. companies have launched large-scale projects to accelerate the production of critical systems. Anduril Industries, for example, announced plans for a major facility dedicated to manufacturing thousands of drones and autonomous systems annually, relying on standardized production methods to reduce lead times.
Beyond emerging companies, established defense firms are also adjusting to this shift. Pratt & Whitney and Rolls-Royce are incorporating additive manufacturing to streamline the production of engines and critical components, reducing costs and assembly times. The application of 3D printing in the defense sector allows for the production of complex parts while reducing reliance on external suppliers, thereby increasing manufacturing flexibility.
Another key aspect of this transformation is the growing role of software in military systems. Many defense platforms now depend on software updates for operational performance, requiring faster development cycles and greater adaptability. The contract awarded to Palantir Technologies for the development of the TITAN battlefield intelligence system reflects this increasing reliance on software-driven capabilities. Traditional defense companies, such as Saab, are also adapting by investing in infrastructure designed to support large-scale software integration.
While innovation in technology and manufacturing processes is a priority, traditional industrial considerations remain relevant. In September 2024, the Pentagon allocated $15 million to strengthen heavy forging capabilities, a critical component for the production of submarines and other strategic equipment. This investment underscores the continued importance of industrial capacity in maintaining defense readiness.
Another significant trend is the diversification of defense suppliers. Since 2022, European states have increasingly turned to non-European manufacturers, including South Korean and Israeli defense firms, to meet their requirements more efficiently. South Korea has become a key supplier of armored vehicles and artillery systems for several NATO countries, while Israeli companies have secured contracts for missile and air defense systems. Some European policymakers have expressed concerns about relying on non-European suppliers, citing strategic autonomy considerations, while others see these acquisitions as a means to rapidly modernize their armed forces.
These developments indicate a fundamental shift in global defense strategies. Beyond rising budgets, the adoption of new technologies, increased production capacity, and the emergence of new defense industry players are reshaping the defense landscape. The growing focus on industrial agility and technological adaptation is likely to define military procurement and capability development in the years ahead.