U.S. GDP grows 0.5% in Q1 2026 as investment and exports drive expansion despite global tensions
Washington- The United States economy posted modest growth in the first quarter of 2026, with gross domestic product (GDP) increasing 0.5% compared to the previous quarter and expanding at an annualized rate of 2%, according to data released Thursday by the Bureau of Economic Analysis (BEA).
The figures came in line with market expectations, though slightly below the projected 2.2%, and reflect an economy that continues to expand despite rising geopolitical tensions, including the ongoing conflict involving Iran.
Growth during the first quarter was primarily driven by strong gains in investment, which surged 8.7%, and exports, which climbed 12.9%. Consumer spending also rose 1.6%, while government expenditures increased 4.4%, rebounding from a 5.6% decline in the previous quarter.
Imports — which subtract from GDP calculations — jumped significantly by 21.4%, reversing a 1% decrease recorded in the final quarter of 2025.
Defense spending increased by 2.3%, following a sharp contraction of 10.7% in the previous period, amid the backdrop of military operations initiated by the U.S. and Israel against Iran on February 28. Federal government spending also rose 9.3%, compared to a 16.6% decline in late 2025.
Inflation indicators remained elevated, with the Personal Consumption Expenditures (PCE) index rising 4.5% annualized in Q1, while core PCE — excluding food and energy — increased 4.3%.
Economists note that while the geopolitical conflict has not yet significantly slowed economic activity, its effects are becoming more visible through rising prices and heightened uncertainty in financial markets.
GDP, alongside inflation and employment data, remains a key benchmark for monetary policy decisions by the Federal Reserve. This week, the Fed held interest rates steady within a 3.5% to 3.75% range following its latest policy meeting, expected to be the last under Chair Jerome Powell.
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