Investors eye defence winners as Ottawa’s 5% of GDP push collides with deficit and debt risks
Canada’s biggest military build‑up since the Second World War is unleashing a multi‑billion‑dollar scramble for defence contracts, with clear upside for domestic companies — and serious questions about how much the country can afford.
According to the Financial Times, Canada has pledged to boost defence spending to 5 percent of GDP by 2035, with a defence industrial strategy that aims to award local companies 70 percent of military spending, up from about 50 percent.
This shift would boost revenues for Canadian businesses by more than $5.1bn a year.
Markets have already moved.
Since 2024 infrastructure giant AtkinsRéalis’s share price has more than doubled, aerospace firm Bombardier has risen over 400 percent, and MDA Space’s stock has more than tripled from its yearly lows.
The Financial Post reported that Canada’s biggest space technology company, MDA Space Ltd., last week launched a defence‑focused subsidiary that has its eye on “multi‑billion‑dollar contracts.”
Policy is fuelling that momentum.
According to the Financial Post, Ottawa has allocated $82bn under its defence industrial strategy to boost security and the economy by increasing defence exports, awarding more federal government contracts to domestic suppliers and shoring up sovereign supply chains in critical areas such as drones and aerospace.
The Ottawa Citizen reported that Prime Minister Mark Carney complained that up to 75 percent of Canada’s defence capital has gone to US‑built equipment, saying Canada should “no longer send three‑quarters of our defence capital spending to America.”
He said modernising the military could also drive a wider economic transformation.
Early‑stage and mid‑market firms are central to this ambition.
The Financial Post reported that Toronto‑based Creative Destruction Lab will receive $7m from Ottawa for its new CDL Defence program.
The initiative will help early stage ventures move from research to commercialisation, navigate government procurement and connect them with buyers, including the Canadian Armed Forces and NATO allies.
The program will also be supported by the Department of National Defence and the Federal Economic Development Agency for Southern Ontario.
According to the Financial Post, CDL chief executive Sonia Sennik said Ottawa’s investment recognizes that commercialising research is critical to Canada’s technology leadership and economic resilience.
According to the Financial Times, Stephen Fuhr, Canada’s secretary of state for defence procurement, said the new policy allocated $357.7m for smaller companies to scale, innovate and better integrate into military supply chains.
“We will create more opportunities for SMEs and drive growth across our defence industrial base,” he told the Financial Times.
At the same time, smaller firms worry about who actually gets the work.
Some fear risk‑averse decision‑makers will channel most new funding to established players or continue relying on legacy US military providers.
Toronto‑based James Yurichuk, chief executive of Wuxly, which supplies high‑tech uniforms and winter jackets to Ukrainian soldiers, told the Financial Times that spending has to move beyond “exquisite systems” or foreign firms promising jobs.
“We have to look at far‑reaching investments like high‑performance clothing and textiles,” he said, arguing that gear affects morale and safety, and pointing to ranks that remain ill‑equipped for prolonged Arctic deployment.
Industry leaders also see structural gaps.
Horizon Aircraft chief executive Brandon Robinson, a former Canadian air force fighter pilot, said their fixed‑wing electric vertical take‑off and landing aircraft, known as eVTOLs, are part of the next generation of planes and helicopters that NATO expects to be flying by 2035‑40.
Eliot Pence, founder of Dominion Dynamics, which builds a dual‑use Arctic sensing network, told the Financial Times that “Canada ultimately needs an ambitious homegrown systems integrator, like a Lockheed, Northrop or BAE,” to integrate existing suppliers into end platforms.
Pence is also co‑chair of the new Alliance of Canadian Defence Companies (ACDC), an industry‑led trade association and lobbying group representing wholly Canadian‑owned defence builders and suppliers, reported the Ottawa Citizen.
The Ottawa Citizen said ACDC launched with 23 founding members and that Pence sees the association potentially growing to 500 firms.
CTV News reported that members include Dominion Dynamics, ONE9, Convergence Design Services and Valcom.
The alliance said ACDC “exists to strengthen domestic capability” by backing export‑ready platforms and giving Canadian‑controlled companies more influence as defence spending ramps up.
The fiscal costs are significant.
The Ottawa Citizen said the Parliamentary Budget Officer estimated that lifting defence spending to at least 5 percent of the economy by 2035 would mean $159bn in spending that year.
The office forecast a $63bn wider deficit, adding 1.4 percentage points to GDP in 2035‑36 and 6.3 percentage points to the federal debt‑to‑GDP ratio.
The Ottawa Citizen reported that the PBO also highlighted secrecy around Department of National Defence projections after DND declined to provide data and noted that the government “has not published supporting projection details.”
The political debate is sharpening.
CBC News reported that Conservative critic for national defence James Bezan argued that more non‑binding agreements do not increase the operational strength of the Canadian Armed Forces and said the government must “buy much‑needed equipment quickly, based on what we need to defend ourselves.”
According to the Financial Times, Xavier Delgado of the Conference of Defence Associations Institute warned that hitting the NATO target will require “focused effort and political capital” and said, “Everyone loves the idea of hitting the Nato target but few acknowledge the challenging path to get there.”
