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Kia ora.

Welcome to Friday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from interest.co.nz.

Today we lead with news Google's Q3 profit miss and AI cash burn have revived investor concerns about the whole race for AI dominance and the valuations driving the sector.

And that is so large, it shows up in US national accounts.

First, the US released its early, first estimate of Q3-2026 GDP growth and that shows a very good +3.4% rate, although that is lower than the year-ago level. The major components featured the tech buildout (consumption +2.5%, investment +3.3%, government +0.9%, exports -0.7%, imports -2.6%. The AI buildout contributed 1.2% of that and rising inventories 1.6%. Without those two it would have been rather grim and both apply to only a small slice of American society. The result does not portray what is going on in the economy as a whole, just their tech sector.

The Atlanta Fed's GDP Now monitoring sees Q4 US GDP expanding by +3.2%, so little-change anticipated.

Meanwhile US PCE inflation came in at 3.6%, higher than the elevated 3.4% in Q2. This was hardly a reason for the Fed to defer pushing back against inflation's spread. The best you can say is that inflation is stuck above the Fed's target and has been for all of 2026 and the actions they have taken this year have not been effective in restraining it.

US initial jobless claims came in at 179,000 last week, above what seasonal factors would have indicated despite the new tough qualification criteria. There are now 1.49 mln people on this assistance, -12.8% fewer than year-ago levels. Data for October non-farm payrolls will be released in a week and it is expected to show essentially no expansion.

Across the Pacific, Japanese consumer sentiment stayed positive at the modest level it has been at for most of 2026.

We had earlier noted that EU consumer sentiment weakened in October. Further updates out today show that producer sentiment improved in the month (that is, got less weak), but their services sector weakened.

And as expected, the ECB left its policy rate unchanged at its overnight review. But it did announce that boss Christine Lagarde will end her term early next year, so an interesting campaign for her successor will start soon. Central bank bosses from either Spain or the Netherlands are considered frontrunners to replace her.

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