NATO 5% target: Ottawa on track to hit 2035 goal, Carney says

Canadian Prime Minister Mark Carney told international audiences that Ottawa is on a path to meet NATO’s newly agreed 5% of GDP defence spending target by 2035, while cautioning that turning higher defence outlays into sustained economic growth will be difficult.

The commitment follows the June 2025 NATO summit in The Hague where allies endorsed a pledge allocating 3.5% of GDP to core defence and an additional 1.5% to defence-adjacent investments such as infrastructure and critical minerals. Ottawa’s internal estimates cited by government and analysts point to an eventual annual bill in the ballpark of $150 billion at full implementation, up from roughly 1.4% of GDP (about $41 billion) in 2024—underscoring the scale of the fiscal adjustment required.

Market implications are likely to be indirect and medium-term: higher deficit financing needs could exert upward pressure on sovereign borrowing and influence yield curves, while targeted demand should benefit defence contractors, infrastructure firms and critical-minerals producers. Parliamentary budget reviews suggest the 5% pathway could materially widen deficits by 2035 unless offset by revenue increases or reallocation, a factor that fixed-income investors and rating agencies will monitor.

Politically and geopolitically, the pledge reflects NATO's response to heightened security threats since Russia's invasion of Ukraine and U.S. pressure for larger allied contributions. Carney frames the spending increase as not merely military procurement but as an opportunity to boost domestic resilience through ports, airports, telecoms and mineral development—components that planners argue can deliver dual security and economic benefits if executed efficiently. Critics, however, warn about procurement inefficiencies and the need for transparent multiyear plans.

Looking ahead, analysts expect Ottawa to publish more granular fiscal pathways in upcoming budgets and to use interim reviews—including a NATO progress review scheduled for 2029—as checkpoints. The key variables for markets will be the balance between new taxes or reallocations, the pace of spending growth relative to GDP, and whether investments genuinely raise productive capacity rather than simply adding recurrent costs. Clearer policy design that ties defence outlays to industrial outcomes would reduce fiscal uncertainty and improve the odds that higher spending supports long-term growth.