After Ukrainian Armor, which began producing NATO-standard artillery shells last year, lost two manufacturing sites in 2022 following Russian forces’ invasion of parts of the southern Zaporizhya region, the company was able to recover.

Four years later, the company’s CEO, Vladislav Belbas, announced that Kiev-based Ukrainian Armor had significantly increased its production, enabling it to complete an annual government contract to supply mortars within just six months of 2026.

“By 2025, we have reached a stage where the Ukrainian budget can no longer afford to buy everything that Ukrainian manufacturers can produce,” Belbas explained.

This development reflects the remarkable resilience demonstrated by Ukrainian companies and the country’s broader economy in the face of the largest ground invasion Europe has seen since World War II.

The British newspaper “Financial Times” reported that the Russian war did not cause a comprehensive economic collapse, or ignite a banking crisis similar to the one that followed Moscow’s annexation of Crimea in 2014.

After a war-induced contraction in output in 2022, GDP has grown in each subsequent year.

The Central Bank of Ukraine expects the pace of growth to accelerate in 2027 and 2028 after stabilizing at 1.8% this year.

“Growth may not be exceptional, but it is solid under very difficult conditions,” commented Dimitar Bogov, chief economist for Ukraine at the European Bank for Reconstruction and Development.

The speed of Ukraine’s ongoing technological innovation, especially in its advanced drone programs, has also astounded the country’s partners and confounded its enemies.

But despite the growth, the country’s growth story cannot hide the massive economic damage to a country that remains heavily dependent on government spending, with war-related sectors driving much of the economic expansion.

Real GDP remains 21% below its 2021 levels, and more than 40% below its early 1990s levels.

The country also recorded a wide current account deficit of nearly 15% of GDP last year, while inflation is expected to reach 7.5% in 2026.

Western budget support remains crucial to maintaining public sector stability, with EU leaders in December agreeing a deal to lend Ukraine €90 billion, providing a lifeline to finance the country over the next two years.

Analysts believe that four years of fighting have radically reshaped the Ukrainian economy, leaving effects that will last for decades after the end of the current war.

The war has engulfed large parts of the east and south of the country, where some of the most fertile Ukrainian lands are located, along with centers of heavy industry.

Exports from vital sectors, especially agriculture and minerals, declined in the face of the Russian attack, while millions of people fled the country.

Analysts confirm that some of the changes imposed by war conditions may turn into economic strengths if appropriate conditions are created.

A vast ecosystem of military technology startups has emerged, for example, seeking to give Kiev a battlefield advantage that might offset Russia’s numerical superiority.

Dozens of companies have worked to develop ground robots to resupply front-line units, complex electronic warfare solutions to shoot down Russian drones, and artificial intelligence units that allow unmanned aerial vehicles to fly and even hit targets autonomously.

“This sector creates exportable products with high profit margins, creates highly-skilled jobs, and maintains engineering talent within the country,” said Andriy Cholyk, CEO of Sign Engineering, a Ukrainian company specializing in drone communications and navigation.

However, these technological gains are dwarfed by challenges such as the demographic crisis facing the economy, after 7 million people fled Russian advances, in addition to the internal displacement of 3.7 million others.

A survey conducted by the European Business Association and published in November showed that 74% of company representatives experienced a severe shortage of staff, while only 5% reported that they did not face any shortage at all.

This is expected to limit the country’s growth potential as a result of worsening skills gaps.

“The labor shortage will remain a permanent challenge for Ukraine in the future,” said Olena Belan, chief economist at the Ukrainian investment group Dragon Capital.

In the face of the Russian attack, economic activities are being forced to move to the western regions of Ukraine, which have historically been less industrialized, according to Samoyliuk of the Center for Economic Strategy.

There have also been relocations closer to the front lines. Orehevselmash, a small manufacturer of agricultural machinery, moved in 2022 to the capital of Zaporizhya Region, about 30 kilometers from the front.

The original production site was in the small town of Orekheiv within the same region, which has been subjected to heavy bombing over the past four years and is now only 5 kilometers from the nearest Russian sites.

The move to cramped warehouses in an industrial zone in Zaporizhya, regularly subjected to drone and missile attacks, saw the company’s workforce shrink from about 130 people to only about 30 employees.

The company’s owner, Andrei Kupriyanov, is currently considering moving further west if the bombing in Zaporizhya intensifies.

“We asked our employees, and most of them are ready to move,” he said. “They have already lost everything.”

The country’s post-war prospects will depend not only on demographic factors, but also on Ukraine’s ability to implement anti-corruption reforms and fulfill its pledges to reform and modernize the tax system.

Security guarantees will also be a crucial element in growth prospects, as previous post-war economic experiences have shown, according to Bogoff of the European Bank for Reconstruction and Development.

He added that capital would need to come mostly from the private sector, along with official support.

“For this to happen, we need a good supportive economic environment, which means that all reforms must be in place and contribute to improving the business climate,” he said.

The current survival of the Ukrainian economy rests largely on the effort to support the military, which is repelling Russian advances and withstanding its attacks on critical infrastructure.

According to a report issued by the Kyiv School of Economics, more than 70% of Ukraine’s 2025 budget spending is allocated to financing the army, as Kiev needs to pay the salaries of an army that includes about one million soldiers, in addition to supporting a huge effort to boost defense production.

While attention in recent months has focused on Russian strikes that cut off electricity and heat to millions of Ukrainians during one of the coldest winters in modern history, the range of targets hit by sustained waves of missiles and long-range drones was much broader than just energy infrastructure.

Belbas of Ukrainian Armor said there are hundreds, even thousands, of cases of Russian strikes that are not publicly reported, adding that his own facilities were among the targets.

He added: “It is now a war to drain the economy.” (Al Borsa newspaper)