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Posted by

Ashley Murphy, CFP® GFP Fellow

Ashley works with clients to bring strategy, structure, clarity and confidence to their global financial lives and keep it that way. In 2013, Ashley founded Arete Wealth Strategists, a fee-only financial planning and investment management firm for Australian/American expatriates.

July 2, 2026

Slow Growth Ahead — But Has That Ever Actually Stopped the Markets?

Here is a number worth sitting with for a moment: according to the World Bank's June 2025 Global Economic Prospects report, global GDP growth in the 2020s is on track to average just 2.5% per year, the slowest decade-average since the 1960s. If you spend any time reading financial headlines, you've probably absorbed the conclusion that usually follows: slow growth means dim investment returns, and the coming years will be lean ones. That conclusion is understandable. It is also, history suggests, incomplete.

Annualized real equity and bond returns by decade; source: standard long-run US return datasets.

The World Bank's most recent reports (the June 2026 update adds a Middle East conflict and energy price shock into the mix) point to global growth settling around 2.5% to 2.7% across 2025 through 2027. The IMF's World Economic Outlook paints a somewhat brighter picture, projecting 3.3% global growth in 2026 and 3.2% in 2027, though the same IMF analysis flags a more difficult scenario where conflict-driven energy disruptions could drag that figure closer to 2%, with inflation climbing above 6%. These are genuinely different institutional views, and both deserve acknowledgment rather than averaging.

For emerging markets and developing economies (EMDEs), the story is more strained. The June 2026 World Bank report projects EMDE growth slowing to 3.6% in 2026 before a partial rebound, and, critically, per capita income in most EMDEs (excluding China and India) is not expected to recover to its pre-pandemic level until after 2028. The World Bank's January 2026 report underscores the point bluntly: global growth has "unmistakably downshifted" since the pandemic, running at a pace the report describes as insufficient to reduce poverty and achieve meaningful development goals. That is a real human cost, worth stating plainly. The drivers are a fairly recognizable mix: conflict-related energy price increases (the June 2026 report notes average energy prices are forecast to rise 24% in 2026, with Brent crude expected to average $86 per barrel), trade fragmentation, tighter monetary conditions, and ongoing policy uncertainty. It’s important we stay in touch with developments in the Middle East as these numbers are likely to change quite a bit if a durable peace agreement is reached.

But what does any of this actually mean for a long-term investor? The honest answer is: less than the headlines imply, and the evidence for that is sitting in more than a century of market data.

Consider the 1970s. That decade produced real U.S. equity returns of roughly negative 1.5% per year and real bond returns near negative 1.1% per year, according to long-run return studies drawing on data back to 1928, and decade-level compilations cross-referenced against academic work on the equity premium. Slow growth, high inflation, compressed valuations. Pretty awful, right? Yet the very compression of those valuations set the stage for what followed. The 1980s delivered real equity returns of approximately 12% per year and real bond returns around 3.7%, as inflation fell and multiples expanded. The relationship between slow growth and poor investment returns is real, but it is far from one-for-one, and the channel runs importantly through starting valuations.

Over longer stretches, the pattern holds across geographies. Long-run real equity returns in U.S. markets have clustered around 6% to 7% per year across nearly a century of data, including multiple slow-growth episodes. Canadian equities delivered real annualized returns of about 6.5% over roughly 100 years, according to CIBC analysis. Bonds, in both markets, have hovered around 2% real over the very long run, with some weak-growth decades seeing that number dip toward zero or below. Even a classic 60/40 stock-and-bond portfolio has produced positive real returns across every major stress period in Morningstar's 150-year analysis, including the Great Depression and the stagflation era, though individual decades were sometimes flat.

Of course, none of that means the current environment is without its complications. U.S. equity valuations, as measured by the cyclically adjusted price-to-earnings ratio (CAPE, which smooths out short-term earnings swings to give a longer-term picture of how expensive stocks are relative to their earnings history), sit well above historical averages and well above the levels that prevailed during previous slow-growth periods like the 1970s. That gap matters, because higher starting valuations generally imply lower prospective returns, all else equal. Emerging-market equities, by contrast, trade at lower multiples than their U.S. counterparts, and EM credit spreads (the extra yield investors demand for holding developing-country debt rather than safer alternatives) remain relatively wide, which mathematically implies higher required returns if those risks prove manageable over a 10-year horizon.

The lesson here is not that slow global growth is harmless. The World Bank's numbers are serious, the EMDE income convergence setback is genuinely troubling, and investors who build their plans around the return assumptions of the past decade may be in for a recalibration. But the leap from "slower growth" to "poor long-term returns" skips over a century of evidence that diversified, patient investors have navigated worse. History does not promise a specific outcome. What it does offer is a strong prior: the periods that felt most discouraging at the time have repeatedly turned out to be the ones that mattered least to investors who simply stayed the course.

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