• Five NATO members are on track to spend over 3.5% of GDP on core defence in 2025, according to new alliance estimates.
  • The alliance is moving toward a two-tier framework: a 3.5% core defence target plus up to 1.5% in broader security investments by 2035.
  • Several other allies remain around the 2% threshold, highlighting a growing divergence in burden-sharing.

Spending Trajectory Tightens

The latest NATO estimates, shared with members this week, show that five allies are projected to already exceed 3.5% of GDP on core defence this year, a level that is becoming a new benchmark within the alliance. The figures, which are part of an internal review, underscore the accelerating pace of defence spending in response to heightened security threats and sustained pressure from Washington.

According to people familiar with the matter, the five countries — which include Poland, the United States, and three other European members — have surged past the previous 2% threshold, with some approaching 4%. The estimates come as NATO prepares for its summer summit, where a new spending framework is expected to be formally endorsed.

Two-Tier Framework Gains Traction

The alliance is moving toward a two-tier target: a core defence spending requirement of 3.5% of GDP, with an additional 1.5% allowed for broader security-related investments such as cyber defenses, critical infrastructure, and resilience measures. The full envelope could reach 5% of GDP by 2035, according to alliance planning documents.

“The era of relying solely on the 2% guideline is over,” said a senior NATO official familiar with the discussions. “Allies are now being asked to think in terms of a comprehensive security investment.” Other officials, speaking on condition of anonymity because the deliberations are private, noted that the new targets are designed to make spending more transparent and capabilities-focused.

Divergence Among Allies

While five countries are already above the 3.5% core threshold, many others are still hovering around the 2% baseline. New alliance data shows that about a third of members are below that level, with some at roughly 1.5% of GDP. The disparity is likely to fuel renewed calls for more equitable burden-sharing, particularly from U.S. officials who have long argued that European allies need to do more.

The estimates also indicate that total alliance defence spending for 2025 is likely to approach 2.5% of GDP on a weighted average, up from about 2% in 2023. The upward trend is expected to continue, driven by multiyear budget commitments in several countries.

Market and Economic Implications

The shift toward higher spending has immediate implications for defense contractors and broader markets. European aerospace and defense stocks have rallied in recent months on expectations of sustained budget growth. Analysts at major investment banks have noted that companies with exposure to land systems, munitions, and cybersecurity are particularly well-positioned.

On the macroeconomic side, increased defence outlays are likely to boost output in the defense industrial base but could also strain public finances in high-debt countries. Several NATO members are already grappling with fiscal consolidation, and the new spending targets may require trade-offs with social programs or higher borrowing.

Political Drivers and Next Steps

The push for higher spending is being driven by a confluence of factors: the war in Ukraine, broader Russian assertiveness, and persistent U.S. demands for greater European contributions. The new framework is expected to be formalized at the next NATO summit, with annual reviews and progress milestones in 2029 and 2035.

A spokesperson for NATO declined to comment on the specific estimates, saying only that “spending targets are under continuous review.” Efforts to reach officials in several allied capitals for comment were not immediately successful.

This article was updated to reflect that the five members include Poland and the United States, though the exact list remains unconfirmed.