The German mechanical engineering sector, severely impacted by a systemic industrial downturn, is increasingly transitioning to defense manufacturing to offset mounting losses and avoid potential insolvency. This strategic shift was underscored at the Hannover Messe industrial trade fair, which concludes Wednesday, April 24, 2026.
Analysis from German Foreign Policy indicates that for the first time, the fair featured a dedicated section for companies serving as suppliers for various weapon systems. This pivot occurs as the crisis in the machinery industry accelerates, characterized by collapsing production figures and a shrinking workforce.
Transitioning to defense equipment provides a commercial lifeline. For instance, a manufacturer of spark plug production machinery noted that its equipment can be readily reconfigured for the manufacture of cartridge cases. A primary advantage cited by industry players is that intense competition from China—a major disruptor in civilian markets—is not a factor in national defense contracts. Industry estimates suggest the share of defense-related production within the mechanical engineering sector could easily double in the coming years.
This militarization of the economy is beginning to influence the daily lives of workers, as an increasing number of individuals become financially dependent on the defense sector and the military for their livelihoods.
Machinery sector crisis deepens
Mechanical engineering, Germany’s second-largest industrial sector, is facing a severe crisis mirrored in the flagship automotive industry and the third-ranked chemical sector. Recent data shows the sector generated €280 billion in annual revenue and employed 933,000 people. This workforce figure represents a decline of approximately 22,000 compared to 2024 and a loss of 70,000 jobs since 2019.
Sectoral output fell by 8% in 2024 and a further 5% in 2025. In the first two months of 2026, production contracted by an additional 2% compared to the same period in the previous year. Factory capacity utilization is currently reported at just 77%.
Order intake is also in collapse, dropping 8% in real terms between December 2025 and February 2026 compared to the prior year. The decline is attributed to several factors: US tariffs, which have hit previously lucrative export markets, and surging competition from China. Chinese manufacturers are now supplying machinery of comparable quality significantly faster and at substantially lower prices. As German exports to China dwindle, imports of Chinese machinery are rising, with both trends eroding the sales of German firms.
Reshaping civilian industry for military requirements
In response to these headwinds, many machine tool manufacturers are pinning their hopes on the defense industry. According to the German Engineering Federation (VDMA), the defense sector currently accounts for an estimated 2% to 5% of total mechanical engineering revenue. Given the rapid expansion of German arms production, this share is projected to double within three to five years.
VDMA President Bertram Kawlath acknowledged that this growth will not fully compensate for the “decline in orders from the automotive industry.” Nevertheless, an internal VDMA survey revealed that 63% of member companies view the defense sector as an “important” or “very important” future client.
More than 40% of these companies anticipate double-digit sales growth to arms manufacturers in both 2026 and 2027, largely because Chinese competition is absent from the defense segment.
The newly established VDMA Security and Defense Forum is experiencing high demand. Similarly, the German Machine Tool Builders’ Association (VDW) recently launched an “Arms Industry Monitor” for its specialized clientele due to a significant surge in interest. Köln-based toolmaker Alfred H. Schütte, which produces machinery for spark plug manufacturing, exemplified the trend by noting its equipment can be easily adapted to produce explosives or cartridge cases.
Hannover Messe highlights scale of militarization
The shift toward defense production is affecting broader industrial structures. Hannover Messe, traditionally dominated by civilian mechanical engineering, introduced a dedicated Defense Manufacturing Area this year, described by organizers as a “new, forward-looking exhibition format.”
While the fair did not display finished weapon systems or main battle tanks, Handelsblatt reported that approximately 40 companies in the defense section demonstrated technologies such as automated artillery shell assembly and high-security IT workstations for government data.
At the event, which organizers still claim is the world’s largest industrial fair, exhibits included robots designed not only for testing ammunition quality but also for integration into armored vehicles for military missions. Exhibitors displayed armored steel and various IT solutions for weapon systems, alongside “hardened” devices designed to operate under extreme conditions, such as intense heat.
Emergence of new political and industrial standards
The defense stands at Hannover Messe were organized in close cooperation with the newly established DSEI Germany (Defence & Security Equipment International). This defense exhibition is scheduled to debut as an independent event in Hannover from March 9–12, 2027.
The initiative aims to bring together defense contractors, suppliers, and policymakers. Jochen Köckler, CEO of Deutsche Messe AG, stated that DSEI Germany intends to “set new standards both politically and industrially.” Major German defense firms, including Rheinmetall, Hensoldt, and Diehl Defence, have already confirmed their participation. Organizers emphasized that DSEI Germany will focus heavily on “next-generation” weapon systems.
This is not the only new defense fair emerging amid the sector’s boom; another event, Euro Defence Expo (EUDEX), has been announced for Essen from September 22–25, 2026. DSEI Germany will be held biennially in coordination with the British DSEI, which has been hosted in London since 2001.
The militarization of daily life
The growing importance of the arms industry to the struggling mechanical engineering sector illustrates how individual companies and major industrial events are being drawn into a cycle of militarization.
The consequences of this shift extend into the daily lives of the workforce. Companies producing directly or indirectly for the German Armed Forces (Bundeswehr) must comply with additional security regulations. Employees involved in defense production often undergo specialized security screenings and are subject to strict confidentiality requirements.
An increasing number of households are becoming financially dependent on arms production. This trend is not confined to mechanical engineering. For example, the medical technology firm Dräger, known for the ventilators used during the COVID-19 pandemic, also produces gas masks and constructs field hospitals for installation on naval frigates.
As the defense industry penetrates previously civilian sectors of the economy and the labor market, and as the Bundeswehr gains rapid prominence, changes in public consciousness are occurring that threaten to deeply transform German society. According to German Foreign Policy, political and economic militarization is increasingly being accompanied by a broader societal militarization.