How a boost in defense spending could lift the Canadian economy | Forexlive

RBC notes that this is all hard to pin down but there is clearly a tailwind here for the loonie, though execution will be critical.

Empirical research on the effect of defence spending on long-run growth has found both positive and negative effects.

Positive impacts tend to arise through industrial development, innovation, and infrastructure channels. The defence sector is notably research-intensive. Dual-use civilian/defence infrastructure can also enhance internal connectivity and access to external markets.

Negative impacts tend to stem from capital leakage, fiscal overspending, and the risk of diverting resources from more productive sectors of the economy. Without a procurement framework that prioritizes domestic suppliers, increased defence spending could result in capital outflows.