Economist says accounting quirks may exaggerate defence spending’s economic impact in Canada
A dramatic surge in Canadian defence-related investment helped power domestic demand late last year, but the apparent economic impact may be overstated.
New analysis from Desjardins Group suggests that the spike in government investment in weapons systems during the second half of 2025 may not fully reflect new economic activity, raising questions about how the spending is measured in GDP figures.
The findings come from an economic commentary by Desjardins deputy chief economist Randall Bartlett. According to the report, inflation-adjusted spending on weapons systems rose sharply in late 2025, with purchases surging more than 800% quarter-over-quarter at an annualized pace in the fourth quarter after climbing more than 1,300% in the previous quarter.
Statistics Canada data shows that Canada’s real spending on weapons systems in 2025 nearly doubled the previous peak reached in 2010 during the Afghanistan war. The spending increase was concentrated entirely in the second half of the year.
Even so, the report notes that defence-related investment remains a small slice of the overall economy, representing just 0.2% of nominal GDP in 2025. That share remains below levels seen in the early post-Second World War era and the mid-1980s.
If spending trends from late 2025 continue, however, Canada could see its highest share of economic output devoted to defence in at least 65 years, the analysis suggests.
Bartlett argues that some of the recent jump may stem from methodological issues rather than a genuine surge in new defence procurement.
Part of the uncertainty relates to how weapons systems are defined in the national accounts. As Statistics Canada explains, military weapons systems include “vehicles and other equipment such as warships, submarines, military aircrafts, tanks, missile carriers and launchers.”
However, these figures exclude one-time-use items like ammunition and missiles, as well as infrastructure such as bases or military airports.
The way defence expenditures are recorded can also vary depending on the accounting framework. While GDP measures investment using accrual accounting—spreading costs over the useful life of assets—government spending documents often track expenditures on a cash basis, recognizing them when the money is actually spent.
That difference can create large discrepancies when translating federal defence spending into GDP statistics.
The report also highlights uncertainty about which specific programs are being captured in the weapons systems investment data.
Some media reports have suggested that aircraft such as Kingfisher search-and-rescue planes and Cyclone maritime helicopters may have contributed to the recent surge. But these items may not strictly fit the definition of weapons systems used by Statistics Canada.
Another factor may be the transfer of oversight of the Canadian Coast Guard from Fisheries and Oceans Canada to the Department of National Defence in September 2025, which could have affected how certain expenditures are classified.
Because of these factors, the Desjardins economist says the current data may be overstating the economic impact of defence spending.
He notes that part of the spike in measured weapons systems investment “may be the result of a methodological change as opposed to actual new spending,” meaning revisions could follow as the data is refined.
