This Focus On report provides unique insights from Scotiabank Global Banking and Markets on Canada’s historic defence spending scale-up and new Defence Industrial Strategy, including how it aligns with emerging NATO targets and shifting geopolitical dynamics, and which economic sectors and private and publicly traded companies will likely benefit from primary and derivative exposures in an ambitious Building Canada environment.
Think big: A half-trillion–dollar opportunity. Canada’s Prime Minister Mark Carney launched the Defence Industrial Strategy (DIS) in February 2026, which includes $180 billion in defence procurement opportunities and $290 billion in defence-related capital infrastructure investments in Canada over the next decade. These incremental expenditures are new stimulus to the Canadian economy and its defence-related industries and represent an incremental annual investment of $47 billion. The government expects these dollars to create a further $125 billion in downstream economic benefits and 125,000 new jobs by 2035.
Implications of higher defence spending are expected to be material. Canada recently achieved a base NATO investment threshold of 2% of GDP after decades of underinvestment. To meet Canada’s 2035 NATO target of 5% of GDP implies an 11% CAGR requirement for defence sector expenditures.
Canada’s goals are significant and offer private sector opportunity. The DIS sets explicit targets to raise Canada’s share of defence acquisitions to 70%, increase defence exports by 50%, boost defence-related R&D by 85%, and lift industry revenues by more than 240%. We see several factors that support secular tailwinds, such as heightened geopolitical and geoeconomic tensions and increased technological, industrial, and natural resources competition. The private sector has significant opportunities to play crucial roles to help meet the moment (global aerospace and defence indices are up 1.5 to 2.0 times the S&P 500 since Liberation Day), and we identify 18 primary and 34 derivative exposed businesses within this report.
The changing nature and economics of asymmetric security threats and conflict. Security threats and conflicts are on the rise globally. Increased marine activity in ever more navigable Arctic waters, incursions into North American Air Defence Identification Zones, and digital sovereignty concerns bring these issues closer to home. Recent global military engagements are often characterized by power imbalances that spur fast-paced innovation in an age of AI, cyber and data propagation, and rejuvenated space races. Conflict outcomes are often determined by casualty exchange ratios, but recent battlefield dynamics, such as in the Russia-Ukraine and United States-Israel-Iran conflicts, show how quickly cost exchange ratios, in some cases as high as seventy-to-one, can come into play. As modernization and deterrence strategies are contemplated, we believe Canada has technological and innovation strengths its defence contract companies will be able to leverage profitably.
USMCA, Building Canada, and the bigger picture. In today’s world, we believe economic strategies are connected to security decisions. How Canada maneuvers its defence expenditures will likely offer important insights as the USMCA renegotiation process progresses. There are many execution risks, but, if well executed, a defence ramp-up could strengthen both military capability and industrial capacity in sectors where sovereignty and productivity overlap. In other words, yielding productive and prosperous nation building. Shored-up security could also support broader North American strategic issues.
Snap inspections and all hands on deck – investment themes and exposures. Officials from the Department of National Defence have started to make unannounced visits to key suppliers to check in and support corporate initiatives. Given the magnitude of capital required to achieve Canada’s defence ambitions, we believe there are important potential implications for several economic sectors, which we detail within the full report.
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