Economy
US economy rebounds in Q1 but Iran war clouds outlook, spending
The U.S. economy regained some momentum at the start of 2026, expanding at a modest 2% pace from January through March after recovering from last fall’s 43-day federal government shutdown. But the outlook appears to be clouded by the Iran war.
The Commerce Department reported Thursday that gross domestic product (GDP), the nation’s output of goods and services, rebounded from a lackluster 0.5% expansion the last three months of 2025.
The federal government’s spending and investment grew at a 9.3% annual rate in the first quarter, adding more than half a percentage point to growth after lopping off 1.16 percentage points in fourth-quarter 2025.
Growth in consumer spending, which accounts for 70% of U.S. economic activity, slowed to 1.6% in the first quarter from 1.9% at the end of 2025. Spending on goods, including food and clothing, fell slightly. Spending on services slowed.
But business investment, likely driven by spending in artificial intelligence, rose at an 8.7% pace.
A weak housing market continues to weigh on the economy. Residential investment fell at an 8% annual pace – the fifth straight quarterly drop and the biggest since the end of 2022.
Excluding housing, nonresidential investment surged 10.4%, the biggest jump in nearly three years.
An uptick in imports, which rose at an annual rate of 21.4% from January-March, slashed more than 2.6 percentage points off first-quarter growth.
“This is a split-screen economy,” Heather Long, chief economist at the Navy Federal Credit Union, wrote.
“Companies and investors involved in AI are on fire. Meanwhile, middle and moderate-income households are struggling with high gas prices … Consumption is slowing as people are struggling to manage all their bills and growing more concerned about the future.”
Still, a category within the GDP data that measures the economy’s underlying strength grew at a solid 2.5% clip, accelerating from 1.8% in the fourth quarter of 2025. This category includes consumer spending and private investment, but excludes volatile items like exports, inventories and government spending.
The first quarter included about a month of the clash in Iran. Iran has blocked the Strait of Hormuz through which a fifth of the world’s oil and liquefied natural gas passes. That has driven energy prices higher, fueling inflation and hurting consumers. The Federal Reserve, announcing Wednesday that it was keeping its benchmark interest unchanged, cited “a high level of uncertainty″ arising from the conflict.
Carl Weinberg, chief economist at High Frequency Economics, did not even bother to forecast first-quarter GDP growth.
“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 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.″
Thursday’s report was the first of three Commerce Department estimates.
Türkiye’s exports to the European Union surged 4.7% to $54.5 billion (TL 2.56 trillion) in the January-June period as the bloc shifted its supply chains to more reliable and closer regions during the Middle East crisis, a head of a leading commercial chamber said.
The Turkish auto sector accounted for most of the exports to the EU in the first half of the year, with $15.57 billion, according to the Türkiye Exporters Assembly (TIM).
The auto industry was followed by chemicals and chemical products at $7.1 billion, ready-to-wear fashion and apparel at $4.7 billion, and ferrous and non-ferrous metals at $4.18 billion.
Germany was the recipient of the largest Turkish exports in January through June, with $10.1 billion, up 4.3%, followed by Italy with $6.8 billion, Spain with $5.6 billion, France with $5.3 billion, and Romania with $3.7 billion.
Exports from Istanbul, the largest source of exports in the first six months of the year, to Germany totaled $3.8 billion. While Germany received the most exports from Istanbul, the country was followed by Italy, Spain, France and the Netherlands, the data showed.
Romania continued to rank among the top five EU countries that were also the largest recipients of Turkish exports, while exports from Istanbul to the country reached $1.2 billion.
Türkiye and the EU’s economic relations have grown over the years, with mutual trade volume, investment flows and product integration.
The EU is Türkiye’s largest export market and a key market for Turkish manufacturers, especially those operating in sectors such as automotive, machinery, chemicals, textiles and home appliances.
The ongoing restructuring of global supply chains is further elevating Türkiye’s potential to become a reliable production and supply hub for Europe, while factors such as the green and digital transformation, the need to diversify supply chains, and the potential updating of the customs union could further deepen trade integration between Türkiye and the EU.
Şekib Avdagiç, president of the Istanbul Chamber of Commerce (ITO), told Anadolu Agency (AA) recently that European countries were shifting their supply chains to nearby, more reliable regions, making Türkiye “a natural hub for production and exports,” as the world was going through a challenging and uncertain period.
‘New global order’
“Türkiye-EU relations must be addressed with a new approach just as political and economic developments around the globe are shaping a new global order,” he said.
Avdagiç said Europe was restructuring not only its military deterrence but also its industrial capacity, supply chain resilience, and technological independence in this climate, while the bloc’s security and economic infrastructure had become increasingly intertwined.
He said Europe aimed to reduce its foreign dependence on defense and advanced manufacturing technologies, which, Avdagiç said, some member states might not prefer to acknowledge, leading to more selective and controlled technology-sharing models with Türkiye.
“The energy security aspect of Türkiye’s relationship with Europe is also one of the most critical layers as Türkiye stands out as a sort of transit country and a regional energy distribution hub, facilitating energy flows,” he said.
“The flow of energy from the Eastern Mediterranean, the Caspian Sea, and the Middle East to European markets has become a component of geopolitical stability, which has driven Türkiye-EU relations beyond the traditional foreign policy framework into a multilayered, strategic structure.”
“This structure, through an evolving base of security, economic, and industrial policies, is shaped not only by short-term needs but also by a foundation of structural interdependence,” he added.
The South Korean government lifted its 2026 growth forecast by one percentage point to 3% on Tuesday, expecting a stronger performance driven by upbeat performances from major memory chipmakers as artificial intelligence demand soars.
Record profits from semiconductor giants Samsung Electronics and SK Hynix – whose advanced memory chips are essential for the fast-evolving AI sector – have fuelled optimism over the country’s economic outlook.
The government has unveiled an ambitious economic agenda and has said it plans to invest an expected windfall from tech giants’ taxes into public projects.
“We had initially projected this year’s real economic growth rate at 2%, but we have now revised our forecast upward to 3%,” Finance Minister Koo Yun-cheol told a Cabinet meeting Tuesday.
“Although exchange rate fluctuations could affect the outcome, per capita income is projected to remain around the $40,000 mark,” Koo added.
In a presentation slide shown during the meeting, the finance ministry called the strong semiconductor market a “boon for the economic indicators.”
However, an agile policy response is needed to address “changed economic situations, including widening wealth polarization,” the slide said.
SK Hynix and Samsung are involved in a public-private investment of 800 trillion won ($540 billion) to build a chip hub in southwest South Korea – part of broader efforts to address regional inequality.
Tuesday’s Cabinet meeting also flagged high exchange rates, interest rates and consumer prices as risks amid the continuing Middle East conflict.
President Lee Jae Myung had said on Monday that higher tax revenues, thanks to AI-driven profits, were a “golden window” of opportunity to invest strategically.
The windfall will be used to establish a “future response fund” to concentrate investment in “future industries, youth, regional development, and education,” Lee said, without giving further details.
The boom has also strengthened workers’ demands for higher pay, with Samsung Electronics avoiding a major strike in May after reaching an agreement on bonuses.
Three companies dominate the market for producing advanced memory chips: U.S. giant Micron, and South Korea’s Samsung Electronics and SK Hynix.
These chips, called high-bandwidth memory (HBM), are used in AI processors alongside powerful silicon known as GPUs to generate chatbot responses or realistic images.
China’s exports once again topped expectations with official data on Tuesday indicating that the continued global AI boom helped boost demand for chips and computing equipment from the world’s second-largest economy in June.
The figures came despite global trade disruptions caused by the U.S.-Israeli war on Iran, providing a much-needed boost to China, which is increasingly reliant on exports to fuel growth.
Overseas shipments rose 27.0% year-over-year, beating the 19.0% forecast in a Bloomberg survey of economists.
The General Administration of Customs data also showed imports soared 36.0%, easily outstripping the 26.1% estimated in the Bloomberg survey, and well up from the 27.4% jump seen in May.
“Trade values took another big leg up in June. This predominantly reflects the recent surge in semiconductor prices on the back of the AI boom,” Julian Evans-Pritchard, of Capital Economics, said in a note.
The value of China’s semiconductor exports more than doubled from the same month a year ago and rose $2.7 billion from May, while data processing equipment shipments also rose 53.1% from a year earlier.
But that expansion was “entirely a price story caused by the ongoing shortage of memory chips,” Evans-Pritchard said, noting that the volume of semiconductor exports actually fell year-over-year in June.
“Surging semiconductor prices are playing a key role in pushing up import values,” rather than domestic consumption surging, he said.
Automobile exports, meanwhile, jumped 69.6% year-over-year, reflecting strong demand for Chinese electric vehicles, he added.
Shipments to the U.S. rose 13.9% to $43.5 billion, putting China’s trade surplus with its superpower rival at $28.9 billion.
Ties between Washington and Beijing have stabilized since U.S. President Donald Trump visited Beijing in May, but the persistent trade imbalance remains a source of friction between the two.
China is also locked in a simmering trade feud with the European Union, with which it recorded a trade surplus of $32.9 billion in June, a rise from $30.7 billion in May.
June’s data “showcases the competitiveness and resilience of China’s manufacturing sector,” Zhang Zhiwei, of Pinpoint Asset Management, wrote in a note.
“It also puts further pressure on the trade tension between China and its trading partners, Europe in particular,” he said.
The volume of rare earths exports was down 34% last month and 6.4% on an annual basis in the first six months of the year as Beijing tightened restrictions on the critical elements.
China accounts for around two-thirds of the total global production of the minerals, which are used to make everything from smartphones to missiles, and has wielded its dominance in the sector as a weapon in trade wars with the West.
China’s overall trade surplus hit $126 billion last month, up from $105 billion in May, a gap that is worrying for European economies and other governments.
The U.S. central bank should stand ready to hike interest rates in the near-term if inflation remains above target, the bank’s top official said Monday.
“When inflation is well above its target and the labor market is near full employment and stable, any serious policy rule calls for raising the policy rate to bring down inflation,” a member of the Federal Reserve (Fed) Board of Governors, Christopher Waller, said at an address in Rome.
Waller said Tuesday’s consumer price index (CPI) report will be important.
“If we get another hot reading on core inflation this week, then the (Fed) will need to consider tightening monetary policy in the near term,” he said.
The stance is in line with remarks from newly installed Fed Chair Kevin Warsh, who vowed at his first press conference as head that the central bank would achieve price stability.
Waller noted that the 12-month personal consumption expenditures rate in May stood at 3.4%, well above the Fed’s 2% target.
The Fed “has to be ready to tighten monetary policy to prevent a repeat of the 2021-to-2022 inflation episode,” Waller said.
“Sternly staring at inflation until it melts before our withering gaze is not an option.”
Waller said he was aware of the need to avoid “overtightening” and risking a recession, but that dynamics in the labor market and with inflation point policymakers in a clear direction.
“Unless I see evidence of a significantly weakening labor market, my focus will be on inflation,” Waller said.
The European Union will move to limit young children’s access to social media across the 27-member bloc, European Commission President Ursula von der Leyen said on Monday, in what would be the biggest such effort to date to guard against online dangers.
Von der Leyen’s remarks came as a special EU panel looking into the challenge recommended forbidding access for those under 13 until tech companies can prove their platforms are safe.
Growing awareness of the dangers social media poses for young, developing brains has shown up in a wave of new restrictions globally. Australia, the U.K., Türkiye, Indonesia and others have passed bans on kids under 16 or 15 from using platforms like TikTok, YouTube and Instagram.
Laying out a list of her concerns about the use of social media by kids, von der Leyen, a doctor by training, said that children under 3 should have no exposure to screens at all.
“I believe we need to consider phased and gradual access for different age ranges because childhood won’t wait and once it’s gone, we can never give it back,” von der Leyen told reporters.
“Just as we don’t give our children keys to the car before they have their license, or we do not let them buy alcohol until they are legally allowed. We need to set the age at which they can, the children can, legally access social media,” she said.
“This is not about whether children can access social media. It is about whether and when social media can access our children.”
Von der Leyen noted infinite scrolling as one of the “addictive” traits that tech companies must address.
Beyond toddlers, she did not mention any precise restrictions, but she and the European Commission, the EU’s powerful executive branch, are likely to come up with a proposal for the 27 member countries to weigh in the near future.
Von der Leyen’s policy proposals carry great influence with EU member countries.
A special panel set up to study child safety online delivered its report to the EU chief on Monday. The report said that when it comes to safety, “the burden of proof needs to be on providers, not regulators, parents and children.”
“Until they demonstrate that their services are safe by design, social media and other digital services providers should have restricted access to children under the age of 13 in the EU,” said the report, which is likely to influence von der Leyen’s thinking.
It recommended that “further precautionary age restrictions” should be considered by EU countries for children over 13.
The European Union has been mulling a social media ban since a push by EU states, including Greece and France, for limiting access, with pressure intensifying for a bloc-wide ban.
A legal proposal will come in the second half of the year, von der Leyen added, but she is expected to give an indication of what the restrictions will look like in September.
The report by co-chairs child psychiatrist Jorg Fegert and epidemiologist Maria Melchior offered a glimpse of how the EU’s proposal could look like as they recommended:
No screens at all for babies and toddlers; Supervised use of “age-appropriate social media” and devices children aged between three and 12 by parents or teachers; For those aged 13 to 18, “evolving autonomous use” of social media and other digital platforms that have “key safety features.”
Many social media and video sharing platforms including TikTok and Meta’s Facebook and Instagram are only available to children aged 13 and over.
Platforms “must prove that their services do no harm. In Europe, whoever develops a product is responsible for its safety,” von der Leyen said.
“We are convinced that Europe must introduce protective measures to ensure the safety of children and adolescents in the digital world,” Melchior said, standing next to von der Leyen.
The EU has already ramped up the pressure on social media platforms to change in recent months, telling Facebook and Instagram Friday to dismantle their “addictive” features, after a similar warning to TikTok in February.
Divided EU positions
The report did not recommend a blanket ban on digital platforms including social media, and von der Leyen did not back such a move.
What the panel found was the Australian ban faced difficulties as children found ways around the limits, forcing the EU to reconsider its approach.
Instead, it wants platforms to remove or limit features like autoplay content, infinite scroll, and push notifications.
The European Parliament in October called for a ban on social media for children under the age of 16, a position some EU lawmakers continued to back – although divisions remain over the age.
“I still believe the age should be 15, not 13. 13 is already the minimum age used by most major social media platforms today,” EU lawmaker Christel Schaldemose said in a statement after the panel’s report.
There will likely be difficult negotiations since any EU proposal will only become law after talks between the parliament and member states.
Targeting harmful design
A dilemma for the EU is how to avoid different age limits across 27 countries. For example, Spain wants to ban under-16s accessing social networks, while France proposes prohibiting children aged 15 and under.
And then there are EU nations such as Estonia that oppose a ban.
Von der Leyen said the European Commission, the EU’s executive arm, would “have a very careful look” at the national proposals.
Brussels will “integrate” their work, she said, and then prepare its own proposal to “harmonize the approach and to find a common solution.”
The EU already has a bolstered armory to rein in Big Tech and protect users online, and the commission has said more rules are on the way.
EU consumer protection chief Michael McGrath vowed a new law, expected later this year, will give children stronger protection against addictive design.
Volkswagen may need to eliminate about 50,000 additional jobs to match the competitiveness of its rivals, its CEO told employees in an internal memo, effectively confirming for the first time that the carmaker is considering cuts of up to 100,000 positions.
Oliver Blume is battling to streamline Europe’s biggest carmaker, whose profits have slumped as its faces billions of euros in tariff costs, stiff competition in China and pressure on its German manufacturing network to become more efficient.
After already agreeing 50,000 job cuts across the group, including its Porsche and Audi subsidiaries, the company must work on reducing costs further, having calculated a cost disadvantage versus comparable companies of 20%, Blume said in the memo seen by Reuters.
This means a “theoretical deduction” of another 50,000 jobs worldwide, the memo said.
“We are currently assessing across all brands, companies and regions how many adjustments are actually necessary and feasible,” Blume said in the document.
Staff costs are determined not only by the number of employees but also by labor costs, he added. “We must also pull this lever,” he said, indicating that the exact scale of the job cuts has not yet been finalized.
The company had previously declined to comment on reports it was considering up to 100,000 job losses.
The memo follows angry calls from workers for management to explain its restructuring plans, which Blume presented to the company’s supervisory board on Thursday.
Nationwide protests were held by trade union IG Metall on Thursday, while the company’s works council also outlined its fury over the weekend.
Sources familiar with the matter said labor representatives on the committee blocked the proposals, which were said to include job cuts and the possible closure of four factories.
“As of today, we still cannot confirm competitive use cases for the plants of Emden, Hanover, Zwickau and Neckarsulm in the 2030s,” Blume said in the memo.
He said he preferred “intelligent solutions” to closures, having previously pointed to the defense industry or the production of Chinese Volkswagen models in Europe as options for underutilized factories.
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