Fears rise that US-China trade war leading to recession - economists

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The analysts have now lowered their fourth-quarter growth estimate by 20 basis points to 1.8%, with the cumulative drag on U.S. GDP of 0.6% in light of recent trade war events. -China trade war's effect on the economy.

With new tariffs set to take effect from September 1, Goldman Sachs Group Inc.no longer expects a trade deal before the 2020 presidential election and has revised lower its forecast for the United States fourth-quarter gross domestic product by 0.2 percentage points to 1.8%.

"We expect tariffs targeting the remaining $300bn of United States imports from China to go into effect", the bank said in a note sent to clients.

The move by Trump was in response to China allowing its currency to weaken against the dollar, with the Chinese yuan hitting the $7 landmark, making its exports cheaper.

Goldman said China's decision to halt purchases of US agricultural goods and its decision to allow the yuan to breach the psychologically-important level of RMB1.00 to $1.00 "added up to a swift and meaningful response" to Trump's latest tariff threat.

'The business sentiment effect of increased pessimism about the outlook from trade war news may lead firms to invest, hire, or produce less, ' according to the note.

The uncertainty caused by the trade war could force companies to reduce spending, notes the text, signed by three Goldamn Sachs economists: Jan Hatzius, Alec Phillips and David Mericle.

Two weeks ago, the US President Trump abruptly ended the trade truce by saying that additional 10% tariffs will be imposed on $300 billion worth of Chinese goods.

The experts said the rising cost of logistics due to the disruption in supply chain could force businesses to cut down on domestic activity.

Last week, Lawrence Summers, a former US Treasury secretary and a White House economic adviser during the last downturn, said that the escalating trade tensions are nudging the world economy toward its first recession in a decade, with investors demanding politicians and central bankers to act fast to change course.

On Friday, Trump said that Washington was continuing trade talks with Beijing, but that the US was not going to make a deal for now, remarks which helped to drive a late sell-off in a volatile session that saw the Dow Jones Industrial Average fall 0.34 per cent, the S&P 500 lose 0.66 per cent and the Nasdaq Composite drop 1 per cent.

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