Defence sector not all bad: report

Up to 2500 jobs could be lost in South Australia's defence sector, but the so called "valley of death" isn't cause for despair, an economic report says.

The Bank SA Trends bulletin says South Australia remains well placed to benefit from the construction of Australia's next fleet of submarines, even if they are sourced overseas.

"It is likely that two-thirds of all the costs associated with outfitting and maintaining the submarines must ultimately occur in Australia, with a substantial share of that right here in this state," the report says.

There is also potential for SA to have a role in the future frigates program, offshore patrol boats, Pacific patrol boats and the next generation of armoured fighting vehicles, the bulletin says.

The bank says defence manufacturing jobs have already been lost as a result of the work on the air warfare destroyer program reaching its peak and beginning to wind down and warns there are more to come.

"Yet amid the heated debate, it is easy to forget the complexity of defence spending and its role in the South Australian economy," it says.

"Decisions around the future submarines and future frigates programs are important for the state, and the Valley of Death will present a significant challenge to the local shipbuilding industry, but that isn't cause for despair.

"South Australia could still benefit from opportunities in both the build phase and later sustainment activities even if a foreign submarine is selected as the basis for Australia's new submarines."