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Economists warn the risk of recession is rising because of Trump’s trade war

The hazard of a recession is rising, and the main threat to the economy is the Trump administration’s trade war, according to a survey released Monday by the Resident Association for Business Economics.

“The rise in protectionism, pervasive trade policy uncertainty, and slower global growth are considered key downside jeopardies to U.S. economic activity,” said NABE survey chairman Gregory Daco, chief U.S. economist, Oxford Economics.

A mignonne majority of the Washington-based association of business economists also expects that the Federal Reserve will remain on cling through 2019, while 40% of the group saying they expect at least one more rate cut this year.

The outcomes of the survey, conducted the week of Sept. 9-16, come as many analysts see warning signs in the latest U.S. economic indicators, embodying a plunge in manufacturing activity to more than a 10-year low in September and a sharp slowdown in service-industry growth to levels endure seen in 2016. Those reports last week heightened fears the economy may be flirting with a recession.

Four in 5 of the 54 NABE economists investigated said the economy is at risk of slowing further, up from the 60% who said so in June. In their latest survey, NABE panelists affirmed they expect real gross domestic product will continue to expand at an average rate of 2.3% this year but force slow to 1.8% in 2020. That’s weaker than the group’s last forecast in June.

The panel also supposes industrial production to slow sharply from 4% in 2018 to just 0.9% in 2019. That represents a big moving down revision from the previous estimate of 2.4% in the June survey. And the group expects corporate profits to grow upstanding 1.7% this year, down sharply from the 4.6% forecast in June.

Rising pessimism about corporate profits and a bigger economic slowdown have rattled the stock market. Last week, Wall Street’s main indexes suffered big one-day sheds after employment and manufacturing data suggested that the U.S.-China trade war is taking an increasing toll on the U.S. economy. Amplifying to those trade concerns, the Trump administration won approval Wednesday to slap import tariffs on $7.5 billion usefulness of European goods, threatening a further escalation of the trade war instigated by the White House 15 months ago.

Trade tactics gets much of the blame in the NABE survey, with just over half the panel citing trade as key downside hazard to the economy through 2020. Worries about a slowdown have grown as the trade war with China shows give ups of spilling over to the broader economy, based on weakness in key measures of the manufacturing and services sectors. The trade war has also deteriorated business confidence, prompting companies to pull back on investment.

NABE panelists expect business investment to keep up to soften through next year, with real nonresidential fixed investment forecast to rise by 2.9% in 2019 and 2.1% in 2020, uncountable than a full point weaker than in the group’s June survey.

Despite the economic damage inflicted by the Trump authority’s trade war, the NABE panelists don’t believe the policy is succeeding in its goal of reducing the U.S. trade deficit. Instead, they see the return gap widening significantly — from $920 billion in 2018 to $981 billion in 2019 and to $1.022 trillion in 2020.

Much of that gap, the panel imagined, will come from slower export growth — down from 3% in 2018 to 0.1% in 2019. That’s a big throw over from their June estimate for 2019 of 2.5% export growth. While the group expects the economy to persevere in forward momentum for another 12 months, the odds of a recession are expected to rise next year.

Panelists put the odds of an right away recession this year at just 7%, with a 24% seeing a recession starting by the middle of 2020. They put the freaks of a recession starting by mid-2021 at 69%.

A lot will depend on whether consumer spending, a key driver of economic growth, abides relatively strong. The NABE panel is generally counting on steady spending by households, forecasting growth of 2.6% this year, referred with 2.4% in the June survey.

Next year, they expect consumer spending to rise by 2.3% in 2020, the nonetheless pace they predicted in June. Consumer spending rose 3% last year.

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