Upside surprises to Q3 GDP not a sign of things to come

Many of the Q3 GDP releases of early-reporting economies have beaten consensus expectations in the past few weeks, especially in Europe. Not only did energy-crisis-laden Germany grow in Q3, rather than contract as expected, but the economy managed to pick up a little pace compared to the previous quarter. And while it came in close to consensus expectations, GDP in the US and China rebounded in Q3 after contractions in Q2. However, more recent evidence suggests that this resilience is unlikely to last. China is contending with another wave of virus infections and restrictions, the US economy is bending under the weight of higher interest rates, and the business surveys in the euro-zone point to a bleak few months ahead. The fall in US inflation in October was a welcome sign that things are moving in the right direction there, and the imminent global recession will help to bear down on inflation next year in the US and elsewhere. But the fact that labour markets are tighter in Europe than in the US suggests that core price pressures will be more stubborn in the former, meaning that policy rate cuts will come later than in the US.