Ottawa-Ottawa’s ramp up defense-cost plans will give a lift to the economy, but not enough to protect it from recession, a new issued report forecast.
The updated analysis of Oxford Economics published on Wednesday that Canada’s defense spending commitments would increase the country’s actual GDP in this year and the tenth of the next percentage.
This year will bring an increase of up to 0.9 percent annually and 0.4 percent in 2026.
Prime Minister Mark Carney announced plans to reach the target of two percent NATO of GDP by the end of this year by the end of this year. New members from last month’s NATO summit will see that up to five percent of GDP ramps by 2035.
Oxford Economics believes that quick defense spending will be funded by a large deficit from the federal government; The latest forecasts were prepared before Ottawa announced a plan to spend up to 15 percent in the next three years in the last week.
The federal government is planning to publish its 2025 budget in the decline after traditional spring fiscal updates.
Without affiliated savings, high defense spending means permanently high loan-to-GDP ratio for the federal government, arguing in the report.
Oxford Economics said in the report that the defense-powered collision in real GDP would not be sufficient to get Canada out of the “trade war-inspired recession”.
The firm hopes that the economy shrunk in the previous quarter and the current recession will run till the end of the year for a total decline of 0.8 percent in the actual GDP before the contraction ends.
While the labor market has worked relatively well so far amid the Canadian tariff controversy with the United States-the Ethan system added about 83,000 jobs last month, surprisingly most economists-oxford economics feel that flexibility will be short-lived.
The report said, “US trade policy will motivate the uncertainty and new tariff firms to postpone or cancel investment plans, cut production, hiring and lie faster.”
The firm projected 140,000 job losses to get into recession as the impact makes the previous tariff-related areas wider. It will increase unemployment by 7.6 percent by 6.9 percent seen in June at the end of this year.
Oxford Economics hopes that the Bank of Canada will keep its policy rate at 2.75 percent through this unrest, although the firm said it cannot deny an additional rate or two to deny it.
The report is expected to increase inflation up to three percent by the middle of 2026, effectively ranging from giving too much stimulation to the central bank as the cost of borrowing less.
The report stated, “The recession and increase in inflation will increase private sector lapse and increase in distressed house sales, increase the risk of a deep recession, rapid improvement in house prices, or an unexpected financial crisis,” read in the report.
The analysis of Oxford Economics is largely based on the tariff levels between Canada and the United States, which remain for the remaining year.
If US President Donald Trump fulfills his threat to put 35 percent tariff on Canadian goods, the recession could deepen on 1 August, the report states that a new economic and security treaty by that date may offer significant relief.
Despite those effects, Oxford Economics keeps Canada in a relatively favorable position when talking about economic risk.
The firm knows how risky the approach to major advanced economies based on various factors, including exchange rates, credit ratings and other domestic market dynamics.
On the risk score of 3.3 out of 10, Canada ranks 27th out of 164 countries evaluated by Oxford Economics. It places the country under the United States, Australia, France and Germany, but is above Mexico, Japan and China.
This report of Canadian Press was first published on 17 July 2025.
Craig Lord, Canadian Press
