INTRODUCTION

Following the collapse of the Soviet Union, Georgia faced significant economic challenges, including political instability and conflicts. This resulted in a severe economic recession in the 1990s, with GDP contracting sharply. In the early 2000s, Georgia began implementing economic reforms aimed at liberalizing the economy, improving governance, and attracting foreign investment. These reforms laid the foundation for future growth. During this period, Georgia experienced robust economic growth, with GDP expanding at relatively high rates (averaging 9.7% annual growth between 2003 and 2007), driven by reforms, foreign investment, and improvements in infrastructure and governance.

However, the global financial crisis of 2008-2009 significantly affected Georgia's economy, leading to a slowdown in growth (average growth dropped to -0.6%). However, the country quickly recovered, and GDP growth resumed, though at a more moderate pace (4.8% average yearly growth) compared to the mid-2000s. Throughout the 2010s, Georgia continued to implement reforms to enhance its business environment, attract foreign investment, and diversify its economy beyond traditional sectors like agriculture.

Georgia's GDP growth in the late 2010s and early 2020s was characterized by some fluctuations (averaging 4.9% during 2018-2021), influenced by both domestic and external factors. These included geopolitical tensions in the region, global economic conditions, and internal political developments. Despite these challenges, Georgia maintained positive GDP growth (9.8% and 8% annual growth in 2022 and 2023, respectively), although at varying rates, reflecting the resilience of its economy and ongoing efforts to diversify and modernize key sectors.

In an ever-evolving economic landscape, understanding and predicting Gross Domestic Product (GDP) fluctuations is crucial for policymakers, businesses, and investors. As we navigate through dynamic global markets, the need for accurate GDP forecasting models increases. In recent years, economic indicators have exhibited countless of trends, influenced by factors ranging from geopolitical shifts to technological advancements. These trends underscore the complexity of modern economies, where interconnections between various sectors and regions shape overall growth trajectories.

In a world characterized by constant change, forecasting GDP efficiently enables stakeholders to anticipate economic conditions, thereby facilitating informed decision-making. For policymakers, accurate forecasts serve as invaluable tools for planning effective monetary and fiscal policies aimed at stabilizing economies, promoting growth, and mitigating risks. Similarly, businesses rely on GDP forecasts to measure consumer demand, plan investments, and navigate market volatility. Moreover, investors utilize these forecasts to assess potential returns and allocate resources strategically. This policy brief describes and analyzes the performance of a novel hybrid ISET POLICY BRIEF SERIES PAGE | 3 forecasting approach for Georgian GDP. This model aims to update and enhance the previous model used by the ISET (for details on the previous ISET model, see the Annex.).