U.S. economy set to slow from here on, damaged by trade war

.S. economic growth will slow steadily over the coming quarters after touching a four-year high in April-June, according to a Reuters poll of economists who expect President Donald Trump’s trade war to inflict damage. Boosted in part by a $1.5 trillion tax cut package passed late last year, the U.S. economy expanded at an annualized rate of 4.1 percent in the April-June quarter, its strongest performance in nearly four years.

But the latest poll of over 100 economists taken Aug 13-21 showed the U.S. economy will lose momentum over the coming quarters to grow at less than half that rate by the end of next year. In the current quarter, the U.S. economy was forecast to grow 3 percent and then 2.7 percent in the next, a slight upgrade from the previous poll. But the short-term boost to growth from those enormous tax cuts was expected to wane. Economists trimmed their growth projections across most quarters next year leaving the outlook broadly unchanged and vulnerable to the trade spat with China.

“The trade measures taken by the U.S. so far and the retaliation by foreign governments will probably slow down the economy only marginally,” noted Philip Marey, senior U.S. strategist at Rabobank. Nearly two-thirds of 56 economists who answered an extra question said they have considered a damaging impact from Trump’s expanding trade war in their U.S. growth predictions. This was in nearly identical proportion to a poll of economists covering the euro zone published on Wednesday. Despite the risks emanating from trade tensions, the Fed is still forecast to raise interest rates by 25 basis points in September and once more in December, taking the fed funds rate to 2.25-2.50 percent by end-2018.