US Economy Grows 2% in January-March as Iran War Clouds Outlook

The United States economy accelerated at the start of 2026, with gross domestic product rising at a 2% annualized rate in the January-through-March period, according to the Commerce Department as cited by multiple outlets.

“Iran War; Which Countries Will Face Higher Food Prices and Economic Recession”

BBC

The rebound came after the fourth quarter of 2025 showed growth slowing to an annual pace of 0.5%, which the Guardian tied to “a contraction in government spending after massive layoffs of federal workers last year.”

BBC

CNN similarly reported that GDP was “up sharply from the fourth quarter’s 0.5%,” and NPR described the improvement as growth at an annual rate of 2% in January, February and March.

The Guardian also placed the shift in a broader fiscal context, saying government spending “jumped 10% since last quarter” and moved “from a 5.4% contraction last quarter to a 4.4% increase at the start of 2026.”

NPR echoed that government spending “has largely rebounded, rising at a rate of 4.4% in the first quarter,” while the South China Morning Post added that federal spending and investment grew at “a 9.3 per cent annual rate in the first quarter.”

Despite the headline rebound, the war with Iran was repeatedly described as a cloud over the outlook through energy prices and uncertainty.

The Guardian said “the war with Iran has soured consumer sentiment and increased inflation expectations,” with inflation expectations rising “from 3.8% in March to 4.7% in April.”

CNN and NPR both tied the conflict to higher prices, with CNN noting the war “has jacked up prices and is still ongoing” and NPR saying soaring energy prices were triggered by the war with Iran.

The first-quarter GDP rebound was paired with a slowdown in consumer spending, while business investment and government outlays provided most of the lift.

The Guardian said “consumer spending is slowing” and that “The pace that consumer spending is growing has slowed 0.3% to the fourth quarter of 2025,” while also stating that “consumer spending” growth slowed “0.3% to the fourth quarter of 2025.”

CNBC Al-Arabiya

CNN reported that consumer spending “grew at an annualized rate of 1.6% in the first quarter, down slightly from the fourth quarter’s 1.9%,” and added that the increase was “exclusively driven by spending on services, rather than on goods.”

NPR similarly said “Personal spending rose at an annual rate of 1.6% during the quarter,” and described consumers as “driving the economic train,” even as it warned about the possibility that spending could weaken once tax refunds fade.

The Guardian connected the consumer slowdown to the war’s effect on energy prices and inflation expectations, stating that “The war with Iran has soured consumer sentiment and increased inflation expectations.”

In contrast, business investment was described as surging, with the Guardian saying “Domestic investment also saw 6.4% growth,” and CNN reporting “a massive uptick in business investment” and “spending grew by a stunning 10.4% annualized rate in the first quarter.”

The South China Morning Post put the investment figure at “an 8.7 per cent pace,” saying “business investment, likely driven by investments in artificial intelligence, rose at an 8.7 per cent pace.”

Even with the investment strength, CNN emphasized that real spending was weaker once prices were accounted for, noting that “when taking into account the 4.5% increase in prices during the quarter, real spending was actually down… at an adjusted rate of -2.5%.”

The war’s energy shock was described as pushing oil prices higher and complicating monetary policy, with the Federal Reserve portrayed as balancing inflation pressures against the need to avoid political interference.

“The US economy picked up steam in the beginning of the year as the United States and Israel launched a destabilizing war with Iran that has jacked up prices and is still ongoing”

CNN

The Guardian said “global oil prices reached a wartime high of $126 a barrel, surging 13% in 24 hours,” and tied the move to “peace talks between Iran and the US have reached a standstill.”

It also reported that the US and Iran had “appeared to reach a gridlock over the strait of Hormuz,” adding that “a fifth of the world’s oil and gas supply would typically pass through” the passage.

CNN and NPR both emphasized that the conflict was prompting the Fed to delay rate cuts, with CNN stating “the Federal Reserve to delay any further rate cuts” and NPR describing the economy’s resilience while warning that oil prices were “hitting a four-year high.”

The Guardian also highlighted political pressure on the Fed, saying the central bank had been “in a political bind” and that it was “undergoing intense pressure from the Trump administration to lower interest rates.”

At a Wednesday press conference, the Guardian quoted Jerome Powell supporting a “hold and wait” approach, saying he supported the “hold and wait” strategy the Fed has undertaken to see how both the war with Iran and the impacts Trump’s new tariffs will have on the economy.

The Guardian further quoted Powell warning about independence, saying “the institution is being battered over these things.”

The Hill framed the economic front as reaching a “crisis point,” citing gas prices “about $4.18 per gallon” and describing how “Iran’s stranglehold on the Strait of Hormuz” was driving the increase.

Beyond the US data, the financial outlook was framed through International Monetary Fund warnings that the war could push the global economy toward recession depending on how long high energy prices persist.

The BBC reported that the IMF warned that “if the war between the United States and Israel and Iran continues and high energy prices persist, the global economy faces the risk of a recession,” and it said that in the worst-case scenario global growth could fall “to below 2 percent in 2026.”

Council on Foreign Relations

The BBC added that this would mean “approaching a global recession, an event that has occurred only four times since 1980,” with the most recent during the COVID-19 pandemic.

The BBC also specified the energy-price assumptions, saying the IMF expected oil prices averaging “$110 per barrel this year and rising to $125 in 2027,” and it projected inflation “could reach around 6 percent next year.”

Pierre-Olivier Gourinchas, the IMF’s chief economist, told the BBC that “a prolonged war would drive up inflation, push up unemployment, and escalate food insecurity in some countries,” and he warned that even if the confrontation ended immediately, the impact on oil supply could be as large as the 1970s oil crisis.

The BBC reported that oil prices during the Iran war rose “to nearly $120 per barrel,” then later fell “to $98.85,” and it said the recession risk would increase if severe conditions persisted for two years.

In a separate IMF scenario description, ShahrArani News said the IMF presented three growth scenarios—“weaker, worse, and severe”—and that under the worst-case outlook oil prices were expected to average “$110 per barrel in 2026 and $125 per barrel in 2027.”

ShahrArani News also quoted the IMF’s framing that “This means a move toward a global recession,” and it repeated that economic growth had occurred below this level only “four times” since 1980.

The sources portray the next phase of the economic story as hinging on whether energy disruptions ease, how quickly inflation expectations cool, and how political pressure interacts with policy decisions.

The Guardian said the GDP reading was “the first reading of GDP and is considered an advance estimate,” and it added that “Two further estimates will be released in coming weeks,” while also noting that the reading “only encapsulates one month of the war.”

NPR

It reported that “The reading only encapsulates one month of the war, which has driven oil and gas prices for the last two months,” and that “The full impact of higher oil prices on consumer prices has yet to be seen.”

CNN similarly pointed to uncertainty about how long the conflict lasts, saying “the longer it lasts, the more damage it will inflict on the US economy,” and it described the Fed as delaying further rate cuts.

NPR framed the near-term resilience as dependent on tax refunds, quoting Mark Zandi that “I do think the tax refunds were really critical, particularly in March,” and it warned that the conflict “threatens to keep gas prices high and to push up overall inflation.”

The Hill described the economic waiting game as a factor in the war’s endgame, quoting Kristian Coates Ulrichsen that “We are in an economic waiting game and I think both sides think they can outlast the other,” and it tied that to the Strait of Hormuz and gas prices.

It also reported that Trump “unilaterally extended a ceasefire with Iran earlier this month,” while negotiations remained deadlocked over Iran’s nuclear program.

The Council on Foreign Relations warned that the conflict’s economic repercussions “could prove pivotal—and political—during a midterm election year in the United States,” and it said “Only 30 percent of voters approve of Trump’s handling of the economy.”