Europe’s Slow Economy Slows Profits as Defense Sector Flourishes

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European Economy Faces Headwinds as Defense Spending Soars: A U.S. Viewpoint

March 21, 2025

Flags of the European union fly outside the Berlaymont Building, the European Commission headquarters, in
Brussels, Belgium, Jan. 29, 2025.

European companies are grappling with a challenging economic landscape marked by declining profits in key sectors, while
defense industries are experiencing a surge fueled by increased military spending. This divergence raises questions about
the future of the European economy and it’s implications for the United states.

Economic Downturn Across Key Industries

Many major European companies across various sectors witnessed a sharp profit decline in 2024, a stark contrast to the
thriving defense industry. This downturn, impacting sectors ranging from automobiles to energy, aviation, and banking, is
attributed to rising production costs, a sluggish economic recovery, and escalating trade tensions with the United
States.

The automotive sector, a cornerstone of the European economy, has been notably hard hit. German automakers like
Volkswagen and BMW reported significant drops in net profits, despite slight revenue increases for some. Volkswagen
Group’s revenue rose slightly to 324.7 billion euros from 322.3 billion euros in 2023, but its net profit plunged 30.6
percent year-on-year to 12.4 billion euros. BMW also faced a tough year,with net profit falling 36.9 percent to 7.68
billion euros, while revenues dropped 8.4 percent to 142.4 billion euros.

BMW acknowledged the challenging environment,stating,A challenging competitive environment and macroeconomic,trade
and geopolitical developments could all have a significant impact on business performance. This statement underscores
the interconnectedness of global economic factors and their impact on individual companies.

The energy sector also experienced setbacks, with major European oil giants reporting lower-than-expected earnings due to
declining crude prices and weak fuel demand. British Petroleum (BP) saw its net profit after tax decline to $381 million
in 2024, a staggering 97 percent drop from $15.2 billion in 2023. TotalEnergies, a major French oil company, also
suffered a sharp decline in earnings, with its adjusted net income falling 21 percent to $18.3 billion from $23.2 billion
in 2023.

BP’s Chief Executive Officer Murray Auchincloss announced plans to adapt: We now plan to fundamentally reset our
strategy and drive further performance improvements, all in service of growing cash flow and returns.

Even the aviation sector faced headwinds. German airline giant Lufthansa reported a net profit of 1.38 billion euros in
2024, down 18 percent from 2023. Strikes weighed on the passenger airlines, Lufthansa said in a statement, citing
significantly higher costs, especially in Germany, as well as further delays in aircraft deliveries.

Does increased defense spending, despite offering potential economic stimulus, risk diverting crucial investments away from struggling sectors like automotive and energy?

European Defense Spending and Economic Trends: An Interview with Dr. Anya Sharma

March 21,2025

Interview: European Economic Outlook

Archyde News: Welcome,Dr. Sharma,and thank you for joining us.The European economy is currently facing critically important headwinds. could you give us a broad overview of the situation?

Dr. Sharma: Thank you for having me. The European economy is experiencing a complex period. while increased defense spending offers a potential stimulus, various sectors are struggling with declining profits due to rising costs, trade tensions, and a sluggish recovery.This creates a challenging surroundings for businesses and investors.

Defense Spending and Economic Impact

Archyde News: The European Commission is pushing for increased defense spending, but how does this impact the broader economy, particularly the manufacturing sectors?

Dr. Sharma: Increased defense spending can stimulate the economy. The European Commission’s focus on “made in Europe” defense capabilities aims to create jobs and economic benefits within the EU. However,it’s crucial to ensure that this spending doesn’t come at the expense of investment in other key sectors that are already struggling,such as automotive and energy.

The Future of European defense

Archyde News: Looking ahead,how do you see the interplay between the defense sector and the economic trajectory of Europe playing out over the next few years,considering the “White paper for European defence – Readiness 2030”?

Dr. Sharma: The success of the European defense strategy, and its impact on the economy, will depend on several factors. Firstly,the EU must successfully navigate the delicate balance of supporting Ukraine in the short term while simultaneously investing in long-term security and economic growth for all member states. The “Readiness 2030” white paper indicates enterprising goals. Ensuring coordinated investment and strategic planning will be critical to prevent exacerbating economic challenges and foster lasting growth.

Impact on the United States

Archyde News: How could these economic shifts in Europe influence the United States?

Dr. Sharma: The economic health of Europe is closely intertwined with that of the U.S. A weaker European economy may affect US exports, investment, and overall economic growth. Also, as Europe ramps up its defence spending, we may see the ripple effects of this investment on the defense industry in the U.S.

Concluding Thoughts

Archyde News: One final question. Given the economic climate,what crucial steps should European policymakers prioritize to mitigate the challenges and foster a more resilient economy?

Dr. Sharma: Prioritizing strategic investments in innovation, infrastructure, and renewable energy is critical. Furthering trade relations, and fostering a more competitive business environment can revitalize key struggling sectors. Diversifying economic strategies and preparing for potential future global economic fluctuations will be paramount for building economic strength.