US economy grows 2% in Q1 after shutdown rebound; Iran war adds fresh uncertainty

The US economy grew at an annualised pace of 2 per cent in the January-March quarter recovering from the drag caused by last year’s 43-day federal government shutdown, though the outlook has been clouded by the ongoing Iran war, AP reported.The Commerce Department said on Thursday that gross domestic product (GDP), which measures the nation’s output of goods and services, rebounded from a weak 0.5 per cent expansion in the final three months of 2025.Federal government spending and investment grew at a 9.3 per cent annual rate in the first quarter, contributing more than half a percentage point to overall growth after subtracting 1.16 percentage points in the fourth quarter of 2025.Consumer spending, which accounts for around 70 per cent of US economic activity, slowed to a 1.6 per cent pace in the first quarter from 1.9 per cent in the previous quarter.Business investment, however, rose at an 8.7 per cent rate, with the increase seen as being supported by spending linked to artificial intelligence.The economic outlook has been complicated by the Iran conflict, which has led to the closure of the Strait of Hormuz — a key shipping route through which around a fifth of the world’s oil and liquefied natural gas passes.The disruption has pushed energy prices higher, adding to inflation pressures and weighing on consumers.The Federal Reserve, while keeping its benchmark interest rate unchanged on Wednesday, cited “a high level of uncertainty” arising from the conflict.Carl Weinberg, chief economist at High Frequency Economics, said forecasting the first-quarter GDP number had become difficult due to the scale of uncertainty.“The truth is that we do not have any defensible basis for trying to project how these indicators will print,” Weinberg wrote in a commentary on Monday.“President Donald Trump’s war with Iran has led to a total blockade of the Strait of Hormuz. We do not know how to model the impact of that event, as we have never seen anything quite like it,” he added.Thursday’s GDP report was the first of three estimates that will be released by the Commerce Department.