GDP rose at 2% annual rate in first quarter as U.S. economy rebounds
The U.S. economy showed signs of improvement in the first quarter of 2026, with a 2% annual growth rate that exceeded expectations. Economists had forecasted a 2.2% increase in the nation’s gross domestic product (GDP) for the January to March period, indicating a slightly slower pace of growth than anticipated.
According to Michael Pearce, chief U.S. economist at Oxford Economics, the core of the economy remained strong in the first quarter, driven by the expansion of artificial intelligence (AI) technologies and the positive effects of recent tax cuts. These factors are expected to continue supporting growth throughout the year, although rising energy prices due to the ongoing Iran war could dampen the overall economic outlook.
The latest GDP data represents a significant improvement from the previous quarter, where the economy only grew by 0.5% following a government shutdown. Business investment, particularly in the AI sector, saw a substantial increase of 8.7% on an annual basis, indicating confidence in technological advancements. However, consumer spending, a key driver of economic activity, experienced a slight slowdown from the end of 2025, dropping from 1.9% to 1.6%. Recent reports from Bank of America suggest that the growth in March was primarily driven by higher-income households.
Despite the economy’s resilience, the Iran war has created uncertainty and volatility. The conflict has led to a surge in energy prices, with gasoline reaching $4.30 per gallon and Brent crude surpassing $126 per barrel, the highest levels in years. Economists, including Gregory Daco from EY-Parthenon, predict that the war could negatively impact GDP growth by 0.3 percentage points this year. Daco forecasts a GDP growth rate of 1.8% for the entire year, a slight slowdown compared to the previous year.
Inflation also remains a concern, as the Personal Consumption Expenditures Price Index reported a 3.2% annual increase, exceeding the Federal Reserve’s target of 2%. This rise in inflation could have implications for monetary policy and consumer purchasing power in the coming months.
Overall, while the U.S. economy has shown signs of recovery and resilience, external factors such as the Iran war and inflation pose challenges to sustained growth. Continued monitoring of economic indicators and policy responses will be crucial in navigating the evolving economic landscape.
This article was edited by Alain Sherter, with contributions from The Associated Press.
