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The US economy slowed more than expected in the second quarter of 2026, but strong consumer spending and continued investments in artificial intelligence (AI) are expected to support growth in the coming quarters, according to an ICICI Bank report.
The report said US GDP growth eased to 1.5 per cent quarter-on-quarter seasonally adjusted annual rate (QoQsaar) in the April-June quarter from 2.1 per cent in the previous quarter, falling short of market expectations of 2.1 per cent. The slowdown was mainly due to higher net imports and lower government spending, despite resilient domestic demand. According to the report, private consumption, which accounts for around two-thirds of US GDP, rebounded sharply to 3.2 per cent in Q2 from 0.5 per cent in the previous quarter, supported by tax refunds and spending related to the FIFA World Cup tournament. Business investment also remained firm, driven by AI-related spending. "Given underlying consumption and investment drivers are intact, growth should pick-up in coming quarters even as the boost from hosting the World Cup will wane. Overall growth for the year is estimated at around 2% QoQsaar," the report said. The report noted that non-residential investment moderated to 8.4 per cent from 10.6 per cent in the previous quarter, but technology investments remained strong. It added that capital expenditure by major US technology companies is expected to remain a key driver of economic expansion through 2026. At the same time, imports continued to weigh on headline growth, rising 11.5 per cent in the second quarter, while exports slowed to 4.5 per cent. Government spending contracted 0.8 per cent after expanding 4.4 per cent in the previous quarter, further dragging on GDP growth. "Domestic demand remains firm that was visible in the final sales to private domestic purchasers, which saw a growth of 3.9% QoQsaar in Q22026 from 1.7% recorded in Q12026, the strongest since early," the report added. On the policy front, ICICI Bank said the latest GDP data supports the US Federal Reserve's decision to keep interest rates unchanged. However, it added that the central bank is likely to remain data-dependent, with energy prices continuing to pose an upside risk to inflation. "If inflation starts inching up in response to higher oil prices, the Fed could start tightening policy later this year," the report said. (ANI)
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