Canada hits 2% defence spending target but that won’t help economy ‘anytime soon,’ economists say

Prime Minister Mark Carney earmarked $82 million for defence spending over five years 'on a cash basis.' Photo by Cole Burston/Getty Images files

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Canada may have met its defence spending target, but that won’t translate into a boost in growth for its sagging economy “anytime soon,” say economists.

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The North Atlantic Treaty Organization (NATO) on March 26 said Canada spent $62.7 billion on defence in 2025, or 2.01 per cent of its gross domestic product (GDP), compared with $44.3 billion in 2024.

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“A lot of it did come from increases in personnel compensation,” Randall Bartlett, deputy chief economist at Desjardins Group, said. “Tangentially, it’s a net positive, but it’s not something that’s going to lead to higher investment, higher GDP growth, higher productivity growth.”

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He also said imports of military equipment — Canada doesn’t produce a lot of what it has been purchasing — will water down the effect of the additional spending on the economy.

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Prime Minister Mark Carney earmarked $82 million for defence spending over five years “on a cash basis,” which is how NATO calculates contributions. Last summer, he also announced wage increases for military personnel of between eight per cent and 20 per cent, costing roughly $2 billion annually.

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The defence spending as laid out by the government is “still too small to sufficiently lift spending above two per cent of GDP or generate significant multiplier effects,” Bradley Saunders, North America economist at Capital Economics Ltd., said in an email.

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The funds are for areas such as personnel recruitment and training, ammunition and training infrastructure, digital infrastructure, armoured vehicles, counter-drone and long-range precision strike capabilities, domestic ammunition production, funding for a defence industrial strategy to build out domestic production and expanded defence partnerships with countries such as Ukraine.

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“Money on salaries, increased allocation to supporting Ukraine, that’s all money that’s going out the doors in this fiscal year,” Bartlett said. “That’s money that’s going to be chalked up to spending this year.”

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NATO said Canada spent 36 per cent of its defence budget on personnel, 1.4 per cent on infrastructure, 40 per cent on operations, maintenance and other expenditures and 22.6 per cent on major equipment and research and development (R&D). It said it also included spending on pensions paid to retirees.

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The 2025 amount is equivalent to US$43.9 billion, while the United States spent US$980 billion during the same period, or 3.2 per cent of its GDP.

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Bartlett said one of the reasons Canadian GDP won’t get a boost is that shifting spending from other departments likely helped Canada hit its target. For example, the Coast Guard budget was moved from Fisheries and Oceans to Defence.

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“This is something that helped the federal government meet that two per cent target, so at the end of the day, (it’s) probably not a huge impact on GDP,” he said.

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NATO is now targeting spending by member nations of 3.5 per cent of GDP on “core defence requirements” — salaries, equipment, R&D and military aid — and 1.5 per cent on “defence and security requirements” for total spending of five per cent of GDP by 2035.