In June 2024 NATO published new estimates showing that 23 allies were expected to meet or exceed the benchmark of spending 2% of gross domestic product on defence. The Alliance also said defence spending across Europe and Canada would rise by 18% that year, the biggest increase in decades.
The figure drew attention because in 2014, when allies agreed the Defence Investment Pledge at the Wales Summit, only three countries met the 2% level. Ten years later, the picture had changed substantially. But the metric needs context: the share of GDP is simple and comparable, not a complete measure of military capability.
What the 2% benchmark measures
The figure measures defence expenditure relative to the size of a national economy. It is mainly a political reference point for evaluating how many resources each ally commits to defence. It does not automatically show how that money is used.
Two countries spending the same share of GDP may have very different force structures, personnel costs, readiness levels and technology priorities. Budgets may be weighted toward salaries and pensions or toward ammunition, satellites, cyber defence, drones, aircraft, ships and infrastructure.
The rise in European and Canadian spending
NATO said European allies and Canada were expected to increase defence spending by 18% in 2024. The acceleration reflected a changed security environment and pressure to rebuild stockpiles, improve air defence, increase readiness and strengthen industrial capacity.
Higher budgets create industrial effects. Major platforms take years to build, while ammunition and spare parts depend on production lines that cannot expand instantly. This has made manufacturing capacity, multi-year contracts and access to critical components central issues.
More spending does not automatically mean more output
Turning budgets into usable capability is a core challenge. If demand rises faster than industrial capacity, additional spending can translate into longer delivery times or higher prices. Industrial policy therefore becomes as important as budget decisions.
For complex systems such as combat aircraft, radar or missile defence, capability also depends on maintenance, training, munitions, software, spare parts and integration with allied networks.
The technology dimension
Rising spending coincides with technological transformation. Artificial intelligence, autonomous systems, resilient communications, electronic warfare, space and cyber capabilities are becoming increasingly important in military planning. This creates opportunities for companies that were not traditionally part of the defence sector.
The dual-use model, in which civilian technologies can be adapted for security applications, is growing in importance. Startup ecosystems, semiconductors, cloud infrastructure, sensors and software are therefore moving deeper into defence policy.
Interoperability matters
For NATO, the sum of national budgets is not enough. Forces need to operate together, using compatible communications, standards, procedures and often munitions. Fragmented procurement can increase headline spending without producing the same improvement in collective capability.
That is why coordinated procurement, shared standards and capability planning matter. Investment quality also depends on reducing unnecessary duplication and addressing specific capability gaps.
How to interpret the headline figures
The number of allies above 2% is useful for understanding the direction of spending, but not enough to determine how ready or effective a defence system is. Additional indicators are needed, including stockpile depth, mobilisation times, industrial capacity, operational availability and technological sophistication.
The 2024 shift was still significant because it showed a structural reallocation of resources. For European and North American industry, that means more demand and investment; for governments, it means turning larger budgets into usable capabilities rather than allowing new spending to be absorbed by production bottlenecks.
