The US economy has shown surprising resilience in the face of the impact of the Iran conflict, according to the latest analysis from Barclays. The investment bank projects first-quarter GDP growth of 2.3%, supported by a recovery in government spending after last year's federal shutdown crisis. Despite increasing external disruptions, domestic economic fundamentals are seen as resilient for now.
The industrial sector recorded a slight decline of 0.5% in March, but Barclays stressed that this was not a sign of weak demand. Rather, it was simply a readjustment of volatile sectors such as automotive and utilities. Meanwhile, investment in capital goods related to Artificial Intelligence (AI) technology continued to drive economic activity at an unusually high level.
However, consumer spending, the main driver of the US economy, showed slower signs with growth of just 0.8%. Despite the worrying figure, Barclays predicts that March retail sales will rebound by 1.3%. Consumer resilience in the coming months will be decisive in whether the US economy can truly avoid a recession.
From a fiscal policy perspective, Barclays expects the budget deficit to jump to $2.0 trillion by 2027. This increase is due to increased defense spending due to geopolitical tensions and lower-than-expected tariff revenue. This large government spending is expected to act as a buffer to support domestic demand from external pressures.
On monetary policy, the Federal Reserve is expected to keep interest rates on hold at its April meeting. Barclays predicts the first rate cut of 25 basis points will not occur until September 2026. However, the bank warned that the Fed may keep rates high for a longer period if inflationary pressures and the risk of war persist.
