Few countries are as well positioned as Sweden to address the need for deterrence with an opportunity for prosperity. A heritage of a strong and capable defense industry combined with a low national debt and recent NATO membership provide excellent circumstances to succeed. Translating the rising demand from the European rearmament into growing defense sectors could increase Swedish revenues from hardware military systems and civil defense products fivefold to 330 billion Swedish kronor ($35.8 billion) by 2035. However, the Swedish defense industry needs to strive for platform leadership with at least 15 percent market share in selected sectors given the new NATO context, or risk marginalization as demand is consolidating and competition is increasing.
The scale of European rearmament and Sweden’s important role
Europe is facing a period of heightened geopolitical instability, marked by ongoing conflicts and a shifting global order. In response, European NATO members are undertaking a significant rearmament, committing up to 12 trillion Swedish kronor—3.5 percent of GDP—in annual defense investments by 2035 to strengthen European defense capabilities and increase strategic independence.
Against this backdrop, Sweden has an important role in strengthening deterrence in Northern Europe due to a number of reasons. First, Sweden is a major contributor to Nordic-Baltic military forces, which combined constitute a larger army and air force than any other single European country. Second, Sweden also hosts a comprehensive defense industry across air, land, maritime, space, weapons systems, and electronic warfare. Third, Sweden holds a strategically important geographic location between the Baltic Sea and the High North, with critical logistical supply routes. Finally, Sweden has a strong fiscal starting position to support sustained defense investment over time, with a fiscal deficit and debt levels averaging 0.8 percent and 33.0 percent of GDP, respectively, in the period 2022 to 2025. Collectively, these factors underscore Sweden’s contribution to the European defense.
A dual mission of deterrence and prosperity for the people of Sweden
Sweden has committed to scale its military capabilities as part of the European rearmament. Few countries have the potential and prerequisites to also translate these deterrence investments into broader national prosperity. Deterrence does not depend on military strength alone; it also depends on a prosperous industrial base and economic system that can support it over time. This means Sweden faces a dual mission: building deterrence while also capturing prosperity for the people of Sweden.
The paradoxes of Sweden’s success and struggles—and the path forward
The significant economic impact of achieving the dual mission
Sweden has competitive military and civil defense products across approximately 60 to 70 percent of the European market. However, scale is limited, and only three product segments hold more than 15 percent market share in the military market. A similar pattern appears in civil markets, where only three sectors exceed a 20 percent market share.
At the same time, the challenge of maintaining sovereignty and self-sufficiency is growing significantly. Over the next 20 years, NATO and affordability aspects will likely drive the European defense industry toward consolidation. Maintaining market share across many categories will become increasingly difficult, and the question will be whether Sweden is able to move its relevant positions into platform leadership or risk being marginalized into slow decline.
The opportunity is, however, equally significant. Our assessment of hardware military systems and civil defense product markets suggests that revenues could increase fivefold from about 65 billion Swedish kronor today to 330 billion Swedish kronor by 2035. The first challenge and opportunity will be to grow from 65 Swedish kronor to 175 billion, almost three times revenues, to supply the growing demand. However, Sweden will also likely need to create platform leadership to address the emerging challenge of self-sufficiency and sovereignty. This could drive further growth from SEK 175 to 330 billion by scaling new military and civil defense platforms where Swedish companies could become leading European providers with market shares above 15 to 20 percent. Additionally, if this export-driven growth is achieved, taxes generated from the Swedish defense industry could also help finance the deficit of approximately 75 billion Swedish kronor, driven by Sweden’s 5 percent of GDP spend commitment, putting Sweden in a stronger position to sustain deterrence over time.
But to capture the opportunity of deterrence and prosperity, Sweden must overcome a set of challenges:
- Declining and lower R&D spend. Defense R&D has halved from 0.30 percent of GDP in the 1980s—when the foundation of the current defense industry products was laid—to 0.17 percent today. Further, only 2 percent of total Swedish R&D is directed to defense, versus 5 percent in the EU-27 and 16 percent in the United States.
- Trailing on defense unicorns. Sweden has no defense decacorns. This stands in stark contrast to the country’s leadership in entrepreneurship, being home to one-third of all European decacorns.
- Underleveraging export measures. Sweden lacks a dedicated defense export body and relies on case-by-case approvals. It trails countries such as France, Germany, the United Kingdom, and the United States on most dimensions of export support.
- Supply chains under strain. Backlogs at leading defense primes now equal three to five times annual revenues, signaling that supply capacity cannot keep pace with demand.
Four potential priorities for decision-makers
Achieving the dual mission of deterrence and prosperity requires coordinated action across government, armed forces, industry, and investors to translate rising demand into real capability, industrial scale, and sustained competitiveness. Focusing on four priorities could unlock the full potential of both deterrence and prosperity:
- Link industrial strategy to capability plans. Ensure that integrated national defense plans connect policy, funding, force structure, total defense resilience, and industrial capacity. Clearly identify which capabilities Sweden needs for itself and to meet commitments to allies and partners. Sweden’s industrial strategy should include quantified and time-phased demand signals, enabling industry and capital providers to underwrite investments.
- Raise the industrial ambition and focus. Industry and government should set explicit targets for Sweden to become a leading European security provider with 15 to 20 percent market share ambition in selected segments. Align R&D, supply chain capacity, and investments to this ambition.
- Compete on innovation, unit cost, and speed. Restore Sweden’s tradition of building fast and cheap: Compress procurement cycles, shorten development timelines, reduce unit costs, and scale production. Create clear pathways for new defense companies to scale and reach the battlefield.
- Facilitate exports as a national priority. Adopt and scale the full set of export measures to integrate Sweden into Europe and broader markets. Include export strategy in Sweden’s foreign and industrial policy, and use offsets and other arrangements to access advanced foreign technology and strengthen exportability.
The challenge is significant, but the opportunity is equally large. Sweden is well placed to move quickly on all four priorities. No country in Europe combines the same mix of industrial heritage, fiscal capacity, geographic importance, and NATO membership. The window to both address the need for deterrence and capture the opportunity of prosperity is open.