Canada’s defence spending will lift economy but won’t stop recession: report

The report forecasts Canada's defence spending commitments will raise the country's real gross domestic product up to 0.9 per cent annually this year.

Ottawa’s ramped up defence-spending plans will give the economy a lift, but not enough to save it from a recession, a newly released report forecasts.

The updated analysis from Oxford Economics published Wednesday projects that Canada’s defence spending commitments will raise the country’s real gross domestic product by a tenth of a percentage point this year and next.

That would bring growth up to 0.9 per cent annually this year and 0.4 per cent in 2026.

Prime Minister Mark Carney announced plans last month to reach NATO’s defence and security spending target of two per cent of GDP by the end of this year. New member commitments from last month’s NATO summit will see that funding ramp up to five per cent of GDP by 2035.

Oxford Economics assumes that the accelerated defence spending will be financed by a larger deficit from the federal government; the latest forecasts were prepared before Ottawa announced a plan last week to trim operations spending by 15 per cent in the next three years.

The federal government is planning to publish its 2025 budget in the fall after forgoing the traditional spring fiscal update.

Without associated savings, the higher defence spending would mean a permanently higher debt-to-GDP ratio for the federal government, the report argued.

The defence-driven bump in real GDP also won’t be enough to lift Canada out of the “trade war-induced recession” that’s already underway, Oxford Economics said in the report.