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Q3 GDP nowcasts point to a slowing recovery

Machine learning-led GDP nowcasting points to a recovery in Q3, albeit with slowing momentum through the quarter. China might reach pre-crisis levels of growth while the other big five economies still have ground to make up.Uncertainties around the forecasts are still extremely high. The unprecedented dynamics of the crisis make it difficult to learn from previous experience, while the policies aimed at supporting financial and job market performance dull the otherwise strong signals that these markets send about the economic health. Some of the statistical data may be prone to potentially large revisions and diverging methodologies across countries make international comparisons difficult. Beware especially of comparing UK GDP performance to others, due to differences in the way losses in public sector output during the pandemic have been measured.Our nowcasting methodology can detect more nonlinear relationships in the data than the usual econometric methodology widely applied to nowcasting problems, and thus deal with more noise. Still, it can only pick up what the data records, and during the pandemic data recording processes have proven uneven.Based on our nowcasts, we conclude that Q3 GDP will show further recovery, but with the monthly profile pointing to a slowing pace. Our nowcasts are also more optimistic than the consensus for Japan, the US, and UK, and closer to consensus for China and the eurozone. We suggest for those looking for clarity: Beware the noise in financial market, labour market data, and overarching international comparisons.

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