THE U.S. economy is likely to lose momentum after a strong performance in the quarter just ending, with the threat of a global trade war raising the chances of a recession in the next two years, according to a Reuters poll.

U.S. gross domestic product growth was forecast to average 2.9 percent for 2018 in a poll of over 110 economists taken June 19-25, an upgrade from the previous month and the highest since polling began for the period in May 2016.

For the current quarter, the economy was forecast to grow at an annualized pace of 3.7 percent, up sharply from the 3 percent forecast a month ago. If realized, that will the highest growth rate since the second quarter of 2015.

But that is likely to be the peak, with growth in the economy, currently on its second-longest run on record, expected to gradually slow over the next two years.

The median probability of a recession in the next two years edged up to 35 percent in the latest poll, compared with a touch below a one-in-three chance a month ago. Forecasts ranged from 15 percent to 75 percent.

That rise was driven in part by growing concerns about the blowback to U.S. industry and the wider economy from President Donald Trump’s trade battles, now overshadowing optimism about the boost from aggressive tax cuts passed late last year.

Economists at Bank of America Merrill Lynch analyzed the impact of a trade war on the U.S. economy based on the Fed’s large-scale equilibrium macroeconomic model and said it showed “a notable drag on growth.”

“This suggests that the boost to growth expected from fiscal stimulus — e.g., tax cuts and greater federal government spending — will essentially be offset by the negative trade shock,” wrote BofAML’s U.S. economists Joseph Song and Stephen Juneau in a note to clients.

“Our calculations suggest that a major trade war would lead to a significant reduction in growth. A decline in confidence and supply chain disruptions could amplify the trade shock, leading to an outright recession.”

While the cost to the U.S. economy of the current imposed tariffs so far has been small, several economists said they expect the impact to be deeper if more protectionist measures were to be imposed.

“The imposition of tariffs on half of our imports from China would likely have more pronounced indirect effects for two main reasons,” noted Gregory Daco, head of U.S. macroeconomics at Oxford Economics in New York.

“First, the tariffs on US$200 billion of imports would affect a wide array of business sectors including some with significant supply chain multipliers — i.e., sectors where each dollar of activity generates more than a dollar of activity in other sectors. Second, the potential financial market and confidence impact would be substantial.”

For now, only about a tenth of nearly 60 economists have a recession probability of greater than 50 percent in two years. For the coming year, the median probability held steady at 15 percent, with forecasts in a 5-30 percent range.

Average GDP growth forecasts for next year and 2020 were comparatively lower, at 2.5 percent and 1.8 percent, respectively, but largely unchanged from the previous poll.

The economic outlook for the eurozone and Britain over the next two years follows a similar direction and at a lower speed, indicating a gradual slowdown after 2018, according to separate Reuters polls conducted this month.

This underscores how the global economy is relying more and more on the U.S. for momentum.

(SD-Agencies)