US Economy Shows Resilience Despite Iran Conflict
The U.S. economy has so far remained relatively stable despite ongoing tensions linked to the Iran conflict. However, analysts at Barclays warn that the strength of this resilience may not be guaranteed over the longer term.
GDP Growth Outlook Remains Solid
Barclays estimates first-quarter GDP growth at 2.3% on a quarter-on-quarter annualized basis, which is roughly one percentage point higher than the widely followed GDPNow projection.
The difference is largely attributed to a rebound in government spending following last year’s federal shutdown, which had temporarily distorted economic activity.
Looking ahead, Barclays maintains its baseline forecast of 2.4% GDP growth for 2026 and 1.5% for 2027 on a year-end basis.
Industrial Output Decline Seen as Temporary
Industrial production fell by 0.5% month-on-month in March, coming in below expectations. However, Barclays noted that the decline was mainly due to normalization in volatile sectors such as utilities, automotive production, and mining, rather than a sign of weakening demand.
At the same time, demand for AI-related capital goods remains particularly strong, supporting overall industrial activity.
Consumer Spending Shows Signs of Weakness
Consumer spending has emerged as a softer area of the economy, growing at just 0.8% on a quarterly annualized basis through February.
Barclays expects retail sales to rebound in March, forecasting a 1.3% monthly increase, while the control group—which better reflects core demand—is projected to rise by 0.3%.
Rising Budget Deficit Could Support Growth
On the fiscal side, Barclays has increased its projections for the U.S. budget deficit to $2.0 trillion for both 2026 and 2027. The revision reflects expected shortfalls in tariff revenues and higher defense spending.
Despite concerns over rising deficits, the bank believes increased government spending could help offset the economic impact of geopolitical risks.
Federal Reserve Policy Outlook
Barclays anticipates that the Federal Reserve will keep interest rates unchanged in April. The bank expects rate cuts of 25 basis points in September 2026 and March 2027, although it acknowledges the possibility of a longer period of stable rates depending on economic conditions.
