US Economy Records 2% Growth in Q1, But Ongoing Tensions and Economic Uncertainty Loom Large

US Economy Accelerates in Q1 2026, but Outlook Clouded by Iran War

The US economy experienced a modest acceleration at the start of 2026, growing at a pace of 2 per cent from January through March, after recovering from last fall's 43-day federal government shutdown. However, the outlook is uncertain due to the ongoing Iran war.

According to the Commerce Department, the nation's output of goods and services, or gross domestic product (GDP), rebounded in the first quarter of 2026, reversing a lackluster 0.5 per cent expansion in the last three months of 2025. The federal government's spending and investment grew at a significant 9.3 per cent annual rate in the first quarter, adding more than half a percentage point to growth after a decline of 1.16 percentage points in the fourth quarter of 2025.

While consumer spending, which accounts for 70 per cent of US economic activity, slowed to 1.6 per cent in the first quarter from 1.9 per cent at the end of 2025, business investment rose at a robust 8.7 per cent pace, likely driven by investments in artificial intelligence.

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However, the ongoing conflict with Iran has cast a shadow over the economy. The country has blocked the Strait of Hormuz, through which a fifth of the world's oil and liquefied natural gas passes, driving energy prices higher and fueling inflation. This has hurt consumers and created a high level of uncertainty, according to the Federal Reserve, which announced on Wednesday that it was keeping its benchmark interest rate unchanged.

Despite the uncertainty, the Commerce Department's report provides a snapshot of the economy's performance in the first quarter of 2026. The report is the first of three estimates from the Commerce Department.

Note: N/A indicates that the data is not available for the specified quarter.

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