GDP grew at a 2% rate in first quarter despite Iran war
The US economy showed signs of acceleration in the first quarter of 2026, with a modest 2% growth rate from January to March following the recovery from the previous fall’s 43-day federal government shutdown. However, the economic outlook is uncertain due to the ongoing conflict with Iran.
The Commerce Department’s report revealed that the gross domestic product (GDP) expanded from a sluggish 0.5% in the last quarter of 2025. Federal government spending and investment contributed significantly to the growth, increasing at a 9.3% annual rate in the first quarter.
Consumer spending, a key driver of the US economy, slowed to 1.6% in the first quarter, with a decline in spending on goods and services. In contrast, business investment, particularly in artificial intelligence, saw a notable increase of 8.7%.
Despite the positive trends, the weak housing market continues to weigh on the economy, with residential investment experiencing a significant decline. Nonresidential investment, excluding housing, surged by 10.4%, marking a substantial growth.
Imports rose sharply in the first quarter, impacting overall growth negatively by more than 2.6 percentage points. The economy appears to be divided, with disparities in performance between different sectors.
The ongoing conflict with Iran and the resulting blockage of the Strait of Hormuz have led to increased energy prices, inflation, and consumer challenges. The Federal Reserve acknowledged the uncertainty surrounding the conflict in its recent decision to maintain interest rates.
Economists like Carl Weinberg expressed difficulty in forecasting GDP growth due to the unprecedented nature of the situation. The impact of the conflict with Iran on the economy remains uncertain, making projections challenging.
The initial Commerce Department report is the first of three estimates that will provide further insights into the performance of the US economy in the coming months.
