Oxford Economics Says Defence Push Won’t Spare Canada From Recession

Canada’s accelerated defence-spending plan will provide only a modest boost to economic growth and will not prevent the country from remaining in recession this year, Oxford Economics said in a report released Wednesday. The consultancy estimates the push to lift military spending to the NATO benchmark of 2% of GDP by end-2025—and to 5% by 2035—will raise real GDP by a tenth of a percentage point, leaving growth at 0.9% this year and 0.4% in 2026. The added outlays, assumed to be deficit-financed, would leave the federal debt-to-GDP ratio permanently higher, the report warns. Despite the fiscal stimulus, Oxford Economics forecasts a 0.8% peak-to-trough contraction in output, 140,000 job losses and a rise in the unemployment rate to 7.6% as tariffs and investment uncertainty weigh on activity. The firm expects the Bank of Canada to keep its policy rate at 2.75%, with inflation climbing to 3% by mid-2026, limiting room for monetary support.