The presentation, delivered by João Leal (CFP), Luís Guia (GPEARI), and Miguel Andrade (GPEARI), stemmed from the commitment made at the NATO Summit in The Hague in June 2025, to raise defense spending to 3.5% of GDP by 2035. Portugal, currently 1.4 p.p. short of this target, had the impact of this increase simulated across 16 Alliance countries.
The study utilized NiGEM, a global macroeconomic model, comparing scenarios with different spending compositions and levels of inter-country coordination. The analysis aligns with recent literature, such as the report by Ethan Ilzetzki, which suggests that increased defense spending tends to expand economic activity in advanced economies, although the response of private consumption and investment depends on financing methods and central bank reactions.
For Portugal, the results indicate a positive but moderate impact. In the baseline scenario, with two-thirds of the increase allocated to public investment, GDP is, on average, 0.53% higher than the base scenario between 2027 and 2035. Private investment is stimulated, but household consumption declines, reflecting the fiscal adjustment after initial debt financing.
Coordination among allies boosts Portuguese exports (+0.86 p.p.), but the additional GDP gain is modest (+0.09 p.p.). The composition of spending proves decisive: prioritizing public investment over consumption leads to more persistent GDP effects and nearly doubles the impulse to private investment.
The authors cautioned that the simulations are illustrative and do not capture all productivity gains. They also noted that the increased cost of financing since the work began has heightened the tension between defense spending and other budgetary priorities.
