US economy grows 2pc as AI boom and govt spending lift growth

WASHINGTON: The US economy, supported by strong investment in Aartificial Intelligence (AI) and a rebound in government spending, expanded at a 2.0 per cent annualised rate in the first quarter.

According to the Commerce Department, the growth marked an improvement from the previous quarter, though it came in slightly below economists’ expectations.

A major driver of the expansion was a surge in AI-related business investment, particularly in data centres and equipment. Spending on business equipment jumped at a 17.2 per cent rate, while investment in intellectual products rose by 13 per cent, reflecting the rapid expansion of the tech sector’s influence on the economy.

Government spending also provided a boost, growing at a 4.4 per cent pace, with federal outlays rising sharply after previous weakness. However, the overall momentum was partly offset by a widening trade deficit, which subtracted from GDP growth as imports increased alongside tech-driven demand.

Despite the headline growth, consumer spending slowed to 1.6 per cent, showing signs of strain as inflation, higher fuel prices, and broader cost-of-living pressures weighed on households. Housing investment also remained weak, falling for a fifth consecutive quarter due to high mortgage rates.

Economists said the AI investment boom is currently acting as the main engine of growth, even as underlying demand shows signs of cooling. The labour market remained relatively stable with low layoffs, but hiring has slowed amid uncertainty over tariffs and global tensions.

Inflation pressures persist, with rising energy costs linked to geopolitical tensions adding to household burdens. The Federal Reserve has signalled caution, keeping interest rates steady as it monitors inflation risks and broader economic uncertainty.