Central and Eastern Europe is rapidly becoming the focal point of Europe’s defence industrial expansion, driven by rising military spending, supply chain restructuring and the war in Ukraine, according to a new KPMG report.

The study says the region is undergoing “a decisive moment of industrial transformation,” as Europe shifts “from one off procurement toward continuous production, stockpile replenishment, maintenance, and long term industrial capacity.”

This change, it argues, has shifted “the centre of gravity of defence investment away from Western Europe toward regions capable of delivering volume, cost efficiency, and direct integration into supply chains at speed.”

No longer peripheral 

As a result, “Central and Eastern Europe is no longer the periphery of European defence, but the space where security, industry, and competitiveness converge,” said Tudor Grecu, KPMG Romania defence head.

Countries including Czechia, Hungary, Poland, Romania and Slovakia and are increasingly aligning defence production and procurement strategies, underpinned by shared EU and Nato membership and decades of industrial integration.

“Increasingly visible, regional cooperation is no longer defined by political symbolism, but by functional interests: mobility, connectivity, access to the single market, supply chain security,” the report says.

KPMG highlights dual-use infrastructure as a key growth area, where transport and logistics assets support both civilian and military needs.

The Black Sea is described as “a central strategic node for European security,” linking military mobility, energy security and Ukraine’s reconstruction. Romania’s Constanța port is singled out as a potential maritime security hub under EU plans.

The Danube corridor is also gaining importance as an alternative logistics route, with upgrades to ports and rail links expected to support trade and reconstruction flows.

“For investors and policymakers alike, Central and Eastern Europe is no longer an alternative location, but one of the few regions capable of delivering volume, speed, and industrial scale simultaneously in the defence sector,” said Adrian Duță, senior defence advisor at KPMG Romania.

Industrial base 

The report says the region benefits from “an adaptable industrial base built over the past three decades around advanced manufacturing, automotive production, industrial equipment, electronics, and software.”

It argues this base allows rapid conversion into defence production through “precision machining, metallurgy, electronics, software engineering, and automotive manufacturing.”

Each country contributes different strengths: Poland offers scale and cyber capabilities; Romania combines geography and legacy defence industry; the Czech Republic provides engineering depth; Slovakia focuses on ammunition; and Hungary pursues joint venture-based production models.

Together, these create “a complementary industrial arc capable of supporting resilient regional value chains with reduced dependence on extraEuropean suppliers.”

Ukraine is also increasingly integrated into regional defence networks. KPMG describes it as a source of “demand, testing, and operational innovation,” particularly in drones and battlefield technologies.

EU neighbours, meanwhile, would provide “secure platforms for scaled production, certification, financing, and integration into the single market.”

The report warns of demographic pressures but says opportunities exist in “brain return,” vocational training, and specialised innovation hubs in areas such as artificial intelligence and cybersecurity.

It adds that EU funding tools including cohesion policy and defence mobility programmes could further accelerate industrial cooperation.

“In this scenario, Central and Eastern Europe will no longer be merely a buffer zone or a strategic flank, but an economic and industrial power centre essential to the future of the European Union,” Grecu said.

KPMG operates in 138 countries and employs about 276,000 staff globally, according to the report.