Projected US economic output for the second quarter is holding steady at 2.0%, based on the median for a set of nowcasts compiled by The Capital Spectator. The estimate reflects a slowdown from Q1’s 3.1% gain, but the softer increase in expected economic activity for the current quarter appears to have stabilized. Today’s median nowcast is unchanged from the moderate 2.0% estimate published two weeks ago.

Incoming data in the weeks ahead could still alter the outlook for the government’s preliminary Q2 GDP report, which is scheduled for July 26. Based on numbers published to date, however, there’s a reasonable case for expecting that Q2’s deceleration from Q1 will be modest. If the median nowcast (via the estimates in the chart below) remains more or less stable through July, the US macro trend will probably stay positive. And if the economy grows through next month, the current expansion will become the longest on record — 121 months, according to NBER.

Recession risk is still low, but “the economy feels more fragile than anticipated,” observes Mark Zandi, chief economist at Moody’s Analytics. “The problem is President Donald Trump’s trade war. While the tariffs the president has actually imposed have been modest — 25% on $250 billion in Chinese imports to the US and some steel and aluminum imports — his threats are anything but. Currently, in play are 25% on the remaining $300 billion in Chinese imports and about $275 billion in vehicle imports.”

Trade-war risk could be a game-changer, veteran trader Art Cashin told CNBC last week, advising that the US economy could be headed for a “borderline recession.”

June survey data for the US Composite Output Index echoes Cashin’s view. This business cycle benchmark slipped to a 40-month low, settling at 50.6 – just slightly above the neutral 50 mark that separates growth from contraction.

“Business activity edged closer to stagnation in June, expanding at the slowest rate since February 2016 and rounding off a second quarter in which the survey data point to the pace of economic expansion slipping to 1.4%,” says Chris Williamson, chief business economist at IHS Markit.

On the bright side, there’s potential for a breakthrough in the US-China trade conflict at the G20 summit (June 28 and 29), where China’s President Xi Jinping and Donald Trump are expected to meet.

Trump certainly has an incentive to negotiate, according to a former partner at Wall Street firm Wertheim & Company. “If President Trump wants another four years in the Oval Office, he needs to strike a deal with China. Soon,” writes Liz Peek.

Nonetheless, relations remain wobbly between the two countries. On Monday, Chinese deputy commerce minister Wang Shouwen said that “both sides must make compromises and concessions, not just one party,” to resolve the trade dispute.

The outcome of the Trump-Xi tête-à-tête could alter the economic outlook, for better or worse, depending on the outcome. Meantime, the Q2 GDP data isn’t expected to trigger a recession warning, based on current figures. The trend, however, is still on track to decelerate, albeit gradually, based on the forecast for GDP’s one-year change via The Capital Spectator’s average estimate from a set of combination forecasts. Today’s revised point forecast projects that the year-over-year rate of growth will ease for several quarters.  

The question is whether President Trump and his Chinese counterpart will pull a rabbit out of the hat and deliver positive news for the global economy—or not? Evercore ISI strategist Donald Straszheim sees the most likely outcome as a middling result — a bit of good news but well short of an agreement that ends the trade war.

Trump and Xi’s G20 meeting will probably lead to “a jointly recognized time-out,” Straszheim predicts in a research note. “Higher tariffs by the US are not implemented for maybe a short time, maybe a long time. Real negotiations would presumably be re-launched. This is maximum uncertainty on tariffs, and to the markets and others (in China, the US and rest of world), but provides maximum flexibility to Trump.”