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.

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.

“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.”

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.

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.

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.

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.

“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.”

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.

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.

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.

“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.

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 f

ive per cent of GDP by 2035

.

Saunders estimated Canada’s defence spending will likely remain stuck at two per cent of GDP until 2030, especially since the government has accounted for the $82 billion in spending on an “accrual basis,” which spreads the cost of an item out over its lifetime.

“This would mean annual defence spending would have to double over the following five years to a whopping $150-$160 billion by 2035 in order to hit 3.5 per cent of GDP,” he said.

Saunders said Ottawa stands a better chance of reaching the 1.5 per cent target on defence and security requirements, pointing to a deep-water port in the Arctic and three critical mineral projects. However, he estimated those projects have a combined value that would only represent 0.1 per cent of GDP.

Ottawa is expected to announce the awarding of a multibillion-dollar contract to supply 12 conventionally powered submarines. The two contenders to supply the vessels are Germany’s TKMS GmbH and South Korea’s Hanwha Ocean Co. Ltd.

Canada could also take delivery of 16 F-35 fighter jets from Lockheed Martin Corp. by year-end, though Ottawa said it was reviewing future purchases.

Bartlett said keeping up with GDP targets will become harder once the big-ticket items are off the books.

“One year, you get this big cash outlay, but after that, it’s really just maintenance,” he said. “You’ve got to figure out what we are going to spend. It’s sort of like you’re always kind of playing catch-up a little bit.”

The upshot, Saunders said, is that the government’s new defence spending plans are a much-needed shift from the Justin Trudeau era, but “they will not be transformational for GDP growth anytime soon.”

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