Ukrainian Armor, which last year began producing Nato-calibre artillery shells, lost two manufacturing sites in 2022 as Russian forces over-ran parts of the southern Zaporizhzhia region.

Four years later, its chief executive Vladislav Belbas said the Kyiv-based company has increased production to the point that a yearly state contract for mortars was fulfilled just six months into 2026.

“By 2025 we reached a point where the Ukrainian budget cannot afford to procure everything that Ukrainian manufacturers can produce,” he said. 

The turnaround speaks to the striking resilience of Ukrainian businesses, and its wider economy, as they weather the shock of Europe’s largest land invasion since the second world war. 

The Russian invasion failed to trigger an outright economic collapse, or the sort of banking crisis that followed Moscow’s annexation of Crimea in 2014. After an invasion-induced output slump in 2022, GDP has increased every year.

Ukraine’s central bank predicts growth will pick up in 2027 and 2028 after holding steady at 1.8 per cent this year. 

“Growth might not be extraordinary, but it is solid under extremely difficult circumstances,” said Dimitar Bogov, lead economist for Ukraine at the European Bank for Reconstruction and Development. 

The speed of ongoing technological innovation in Ukraine — particularly in its state-of-the-art drone programmes — has wrongfooted the country’s partners, as well as its enemies.

Yet as the anniversary of Russia’s invasion looms, the country’s growth story cannot mask the vast economic damage inflicted on a nation that remains heavily reliant on government spending, with war-related sectors driving much of the expansion.

Real GDP still remains 21 per cent below its 2021 levels, and more than 40 per cent below levels at the beginning of the 1990s. The country recorded a yawning current account deficit of just under 15 per cent of GDP last year, and inflation is forecast at 7.5 per cent in 2026. 

Western budgetary support remains critical to keeping the public sector afloat. EU leaders agreed on a deal to lend €90bn to Ukraine in December, providing the country with a lifeline to fund it for the next two years.

But Hungary threw a curveball on Friday, when it objected to the EU budget being used to raise the funds. A new $8.1bn loan the IMF was expected to sign off next week could also be impacted by Hungary’s veto as it was linked to the EU loan plugging a looming hole in Ukraine’s budget by April.

“Without that [EU and IMF] support, Ukraine’s economy would most likely collapse, or at least not show such resilience and recovery,” according to Maksym Samoiliuk, an economist at the Centre for Economic Strategy, a Kyiv-based think-tank.

Four years of fighting have dramatically reshaped the Ukrainian economy, leaving after-effects that will persist for decades beyond the current war, analysts believe. 

The war has engulfed major parts of the country’s east and south, where some of Ukraine’s most fertile lands as well as its centres of heavy industries are located. Exports from crucial sectors — notably agriculture and metals — sank in the face of the Russian onslaught, while millions fled the country.

Some of the changes wrought by the wartime conditions could become economic strengths if the conditions are right, analysts stress. For example, a sprawling ecosystem of military-technology start-ups has sought to give Kyiv an edge on the battlefield that could offset Russia’s manpower advantage.

Dozens of companies have worked on developing ground robots to resupply frontline units, complex electronic warfare solutions to down Russian drones and AI modules allowing unmanned aerial vehicles to fly and even hit targets autonomously. 

“The sector creates exportable and high-margin products, anchors high-skill jobs, and keeps engineering talent in the country,” said Andriy Chulyk, the CEO of Sine Engineering, a Ukrainian drone communications and navigation company.

But such high-tech strengths pale when set against challenges such as the demographic crisis facing an economy that saw 7mn flee from the Russian advances, alongside the displacement of 3.7mn people. 

A survey by the European Business Association published in November found that 74 per cent of business representatives experienced significant staff shortages, with only 5 per cent mentioning no shortages at all. This is set to curb the country’s growth potential as it contributed to skills shortfalls.

“Labour shortage will be Ukraine’s permanent challenge in the future,” said Olena Bilan, the chief economist at Dragon Capital, a leading Ukrainian investment group.

In the face of the Russian onslaught, economic activity is being forced to move to western regions of Ukraine that were historically less industrialised, said Samoiliuk at the CES. 

Relocations have also unfolded closer to the frontline: Orihivsilmash, a small manufacturer of agricultural machinery, moved in 2022 to the regional capital of Zaporizhzhia, some 30 kilometres away from the frontline. 

Its original production site was in Orikhiv, a small town in the same region heavily bombed over the past four years and now just 5 kilometres from the closest Russian positions.

The move into cramped warehouses of an industrial area of Zaporizhzhia regularly targeted by drones and missiles saw the company’s labour force shrink from some 130 people to just about 30 employees.

Orihivsilmash owner Andriy Kupriyanov is now considering a move further west, if shelling intensifies in Zaporizhzhia.

“We’ve asked our employees and most would be ready to move. They’ve already lost everything.”

The country’s prospects after the war will depend not only on demographics but on Ukraine’s ability to deliver on anti-corruption reforms and on pledges to overhaul and modernise the tax system.

The presence of security guarantees will also be critical to growth prospects, as previous postwar economic stories have shown, said Bogov of the EBRD. 

Capital, he said, would need to come mostly from the private sector — alongside official support.

“For that to happen we need to have a good enabling economic environment, which means all reforms need to be in place and contribute to improv[ing] the business climate.” 

Ukraine’s economic resilience for now revolves in large part around the effort to support the military fending off Russian advances and weather its assaults on vital infrastructure.

More than 70 per cent of Ukraine’s 2025 budget spending went to fund the army, according to a report by the Kyiv School of Economics, as Kyiv needs to pay salaries for the nearly 1mn-strong army while also supporting a massive effort to boost defence production.

While attention in recent months has focused on the Russian strikes that cut electricity and heat to millions of Ukrainians in one of the coldest winters in recent history, the scope of targets hit by a constant stream of missiles and long-range drones has been much broader than energy infrastructure.

Belbas of Ukrainian Armor said there were hundreds, even thousands, of cases of Russian strikes that aren’t publicly announced, adding that his own facilities had been targeted.

“It is now a war to exhaust the economy,” he said.

Source: Financial Times.

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