Hi, I'm Matt Finn, Chief Economist for Old National Wealth Management. Joining me today is Don Molé, our Senior Economist and manager of our exchange-traded fund strategies. We'd like to cover some of the big picture themes that shape our outlook for the economy and for investors in 2019. Welcome Don, thanks for joining me today.
Let's start with global growth. Europe and Japan, we talked earlier, both have declining populations, aging populations. It's really not good for productivity and consumption going forward. Political issues like Brexit, the yellow vest movement, it just creates more headwinds, I think, for moving the European economy forward, and trade barriers certainly aren't helping either. What about China? Do you have thoughts on that with the trade wars going on?
People are focusing in on the trade wars right now with China, but there's bigger issues in China that we're not really focusing on right now. There's structural problems. There is tremendous debt in China. It's basically running three times faster or stronger than growth is in the economy. At the same time, we have aging demographics also in China. The one child policy rule has really affected them. So even if we get through the trade issues, there's other issues that China needs to focus on. They're trying to stimulate their economy right now, but I think in the long run growth rates are going to start to slow down to more reasonable levels than they're growing right now at seven to 7.5%.
So having said that, I think our base forecast for international economies is slowing growth rates. Let's talk about the U.S. economy. It seems like the Fed and the marketplace are now synced up in terms of their forecasts for fewer or no rate rises for 2019.
The Federal Reserve has been increasing interest rates. They've increased interest rates 10 times through this particular cycle. The investment markets were getting very concerned that they were raising rates at too-consistent basis. They wanted them to slow down, and in December we saw that the equity markets were really affected by that. And we finally had Fed Chairman Powell come out and say we're going to basically slow down our interest rate increases, we're going to be more flexible with our policy and we're going to see how slowing global growth really affects the U.S. economy.
Thanks, I think it's important to note that what we're forecasting is lower economic growth in 2019, would you agree with that?
Yes, slower growth but not recessionary factors at this point. We're just coming off of excess growth measures and we're starting to slow down to areas that are more normal.
I think our forecast is for GDP, growth in the United States, to be somewhere around 2.5% in 2019 versus over 3% comfortably in 2018. Let's wrap up by talking about some of the changes that we're actually implementing in our portfolios as the economy moves into this transition phase.
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Yes Matt, we're getting more defensive in our strategies. From the big picture, as the economy starts to slow down, we want to invest more in large cap and mid cap sectors of the economy and less in the small cap and mid cap areas which are more sensitive to the economy. And Matt, we're also moving towards defensive sectors which are health care and consumer staples, and we're moving away from more of the economic sensitive sectors which include industrials and materials.
Well thanks, Don. For more information, please visit our website at OldNational.com, or contact your relationship executive.
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