The US economic growth in 2026 may rely more heavily on government and business expenditures, as inflation stemming from the Iran conflict impacts consumers. A report released Thursday is expected to indicate that this trend began taking shape in the first quarter of this year, even before the full effects of the war materialized. Economists surveyed anticipate first-quarter GDP grew at an annualized rate of 2.3%, while consumer spending growth likely slowed to just 1.4%.

Following the record-long federal government shutdown at the end of 2025, a significant rebound in government spending is expected to boost the overall GDP figure. Forecasters suggest that if the conflict persists, increased defense spending will provide further support for economic growth. Meanwhile, business investment data will likely reflect the continued surge in spending related to artificial intelligence (AI) infrastructure development.

Joe Brusuelas, Chief Economist at RSM US, commented, "Sustained investment in AI is indeed providing a strong boost to overall growth. However, aside from that, what was expected to be a year of above-trend growth with a robust start may begin slightly softer than anticipated." The US Bureau of Economic Analysis is set to release the GDP figures. This follows the Federal Reserve's decision on Wednesday to hold interest rates steady, citing increased uncertainty due to the economic impact of the Iran conflict.

Data from the US Bureau of Labor Statistics shows gasoline prices surged at a record pace in March and continued climbing in April. As the conflict enters its third month, economists note that even if resolved quickly, energy prices are likely to remain elevated due to damage to Middle Eastern energy production and refining facilities. They also project food prices will rise this year as disruptions to the fertilizer market ripple through global supply chains.

The initial inflationary impact of the conflict is expected to be clearly visible in the Fed's preferred price gauge, also due for release on Thursday. The core PCE price index for March is forecast to have risen 3.5% year-over-year, the fastest pace since 2023. Increased tax refunds, resulting from legislation passed last year, are expected to have boosted consumer spending last month. Conversely, severe winter weather across much of the US early in the year likely dampened spending. However, economists warn that rising inflation may quickly erode these additional gains. Gregory Daco, Chief Economist at EY-Parthenon, stated, "The larger refunds provide some cushion, but most of the extra income will be absorbed by higher gasoline prices."

AI investment has been a core driver of business spending over the past year, a trend expected to continue into 2026. Economists will focus on expenditures in areas like information processing equipment and software to assess AI's impact on the first-quarter economy, as well as the concentration of construction spending on data centers. However, because many related hardware components are imported, the contribution of this investment to overall GDP growth will be diminished, as imports are subtracted in the calculation. Economist Eliza Winger noted, "The expected rebound in Q1 GDP primarily reflects a mechanical recovery from the drag caused by last fall's government shutdown. Underlying demand remains relatively soft, with weak consumption only partially offset by resilient business investment."

Several economists expect the report to show that net exports acted as a drag on Q1 GDP, reflecting both a surge in AI-related imports and businesses front-running potential new tariffs after the Supreme Court rejected several Trump-era tariffs in February. Based on economic data released Wednesday, including the trade deficit, inventories, and housing starts, the Atlanta Fed's GDPNow model projects GDP growth of 1.2% for the start of the year, with net exports likely subtracting about 1.3 percentage points from growth.

With consumer spending growth weakening and rising imports offsetting some business investment, government spending is poised to be a significant contributor to Q1 GDP. Abiel Reinhart from JPMorgan estimates GDP grew 2.5% in the first three months of the year, but without the boost from the ended shutdown, growth would have been only around 1.5%. The shutdown, which lasted for most of October and November, disrupted government services and left over one million workers unpaid. The Bureau of Economic Analysis previously indicated that reduced federal services during the shutdown subtracted about one percentage point from Q4 GDP. Economists add that if the Iran conflict continues, rising military expenditures could further boost government spending. RSM's Brusuelas pointed out, "The Q1 data does not yet reflect the boost to government spending from increased defense orders; this benefit will materialize in subsequent GDP reports. We expect goods orders to grow in Q2 and Q3, with the pace potentially moderating thereafter."