US economy grows 2% in January–March; Iran war clouds outlook

Lead

The US economy grew at a 2% annualized pace in the first three months of 2026, according to advance figures from the Commerce Department reported by multiple outlets, rebounding from a lacklustre 0.5% expansion in the final quarter of 2025. The growth came despite a third month of the US-Israeli war in Iran, which has driven oil prices to a four-year high and darkened the economic outlook.

Consumer spending, which accounts for about 70% of US economic activity, slowed to 1.6% annualized growth in the quarter, down from 1.9% at the end of 2025, as reported by the BBC and The Guardian. Meanwhile, government spending and business investment—particularly in artificial intelligence—provided a significant boost, according to multiple sources.

Coverage Comparison

Reporting on the GDP release varied in emphasis. The BBC framed the numbers as a boost for President Donald Trump ahead of November's midterm elections, noting that the economy "motored along" despite the war and tariff pressures. The Guardian took a more critical tone, highlighting that consumer spending is slowing and that the war has "soured" sentiment, with inflation expectations jumping. The South China Morning Post described the growth as an "acceleration" that rebounded from the previous quarter, while noting the housing market continues to weigh on the economy.

All three sources agree on the headline 2% annualized growth figure and the slowdown in consumer spending. They differ slightly in describing the drivers: the BBC and The Guardian emphasize AI-related investment, while the South China Morning Post focuses on the rebound from a weak fourth quarter and the drag from housing.

Key Claims

The 2% annualized GDP growth in the first quarter of 2026 is confirmed across all three outlets, as is the 1.6% rise in consumption. Government spending jumped sharply—The Guardian reports a 10% increase from the previous quarter, while the South China Morning Post cites a 9.3% annual rate of growth. This marks a reversal from the fourth quarter, when federal spending contracted due to the government shutdown and federal workforce reductions, as noted by The Guardian.

Domestic investment rose 6.4% according to The Guardian, with the South China Morning Post specifying an 8.7% pace for business investment. Economists quoted by the BBC attribute much of this to tech giants' spending on artificial intelligence. James Knightley, chief international economist at ING, told the BBC that as consumer spending cools, "investment linked to tech and AI has clearly become the main engine of growth in the US."

The war with Iran has driven oil prices to $126 a barrel, a four-year high, according to multiple outlets. The Guardian reports that prices surged 13% in 24 hours as peace talks stalled. The conflict has also led to higher interest rates and inflation expectations, though the BBC notes the Federal Reserve kept its benchmark rate unchanged while citing "a high level of uncertainty." The stock market has rallied despite the turmoil, according to a single source.

The war's cost to the US government is reported by The Guardian at "at least $25bn"—a figure not mentioned by the other outlets and not yet independently verified.

Perspectives

The economic picture is mixed: headline growth is positive, but the underlying conditions for American households are strained. As the BBC reports, while growth figures are strong, voters are more likely to judge the economy by the cost of living, which has been pushed up by tariffs and the energy shock. The Guardian echoes this, noting that consumer sentiment has soured and inflation expectations rose from 3.8% in March to 4.7% in April, the largest one-month increase since Trump's "liberation day" tariffs in 2025. The full impact of higher oil prices on consumer prices has yet to be seen, as The Guardian points out.

The South China Morning Post highlights the housing market's continued weakness, with residential investment falling for the fifth consecutive quarter, while non-residential investment surged. This suggests that the growth is uneven, with the federal government's spending and AI investment masking broader softness in consumer-facing sectors.

An uptick in imports, rising at a 21.4% annual rate, subtracted more than 2.6 percentage points from first-quarter growth, as noted by the South China Morning Post. This dynamic reflects strong domestic demand but also the drag of trade on GDP.

As the war enters its third month, with no end in sight and oil prices elevated, the sustainability of this growth remains uncertain. The Fed's decision to hold rates steady amid "high uncertainty" underscores the fragile balance between inflation and growth. With midterm elections looming, the economic data will be a key political battleground, as the BBC notes, with Trump using the figures to argue his approach is working, while critics point to the strain on consumers.