Page 35 - Ukraine OUTLOOK 2025

6.0 Real Economy
• 6.1 Industrial production and PMI
The war will remain a major driver for industry as the government dedicates some 20% of GDP to defence spending. The major shift in the second half of 2024 was the change from supplying Ukraine with Nato equipment to investing in factories to allow the country to make its own weapons.
Ukraine's defence industrial base has grown by more than 900% since February 2022, driven by the country's current military needs, US Deputy Secretary of State Richard Verma said. After the war, Ukraine will have one of Europe’s most modern and competitive defence industrial bases, capable of taking global market share away from Russia and supplying Nato-standard ammunition and equipment to its allies.
The first foreign defence industry association has opened a representative office in Ukraine. The Group of Companies of the Defence and Aviation Industry of France (GICAT), which unites almost 480 French companies, has officially opened its representative office in Kyiv. This is the first foreign defence industry association to open a representative office in Ukraine.
Europe is funding Ukrainian weapon production due to its capacity constraints. European allies, struggling to produce enough weapons for Kyiv’s war effort, are taking a new approach: giving Ukrainians money to do it themselves. Under the new approach, Europeans are funding government contracts with Ukrainian weapons manufacturers, including the production of missiles and drones capable of striking Russian territory. Kyiv tells its allies which companies to work with and what weapons to buy, and European officials can vet manufacturers before agreeing to deals. Proponents of the approach argue that Ukrainian defence companies can produce many systems faster and cheaper than Western suppliers. Ukrainian firms are also adapting equipment to the ever-changing needs at the front while strengthening their defence industry for the future, freeing up European capacity to build up their own weapons stockpiles. The so-called Danish model is attracting more and more attention and interest from other countries: Norway, Sweden, Lithuania, Germany and the Netherlands. Denmark has already committed about $680mn to Ukraine's military-industrial complex.
EU countries have agreed to cooperate on weapons development in four areas. Groups of EU countries have signed LoIs to jointly develop weapons in the following areas:
- integrated air and missile defence (18 countries),
- electronic warfare (17 countries),
- kamikaze drones (14 countries), and
- combat surface ships (7 countries).
The provisions recorded in these LoIs range from short-term joint procurement to medium-term modernisation and improvement and long-term development of future capabilities.
Most Nato countries have already approached Ukraine regarding partnerships or the supply of military equipment. Ukrainian private arms manufacturers have been contacted by 20 of the 32 Nato member countries regarding partnerships or the supply of military equipment. Nato members such as Lithuania, the US,
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