Category: 3. Business

CONTEXT

Prudent economic policies have achieved important successes. A reduction in the budget deficit from 4.7 percent of GDP in 2024 to a projected 3.6 percent of GDP this year, reflecting mostly continued expenditure restraint and improved tax compliance and administration has helped curb aggregate demand.[1] Inflation has gradually declined, from 49 percent in September 2024 to 33 in October 2025, and positive real policy rates, even after recent rate cuts, have maintained confidence in the lira. Growth reached 3.6 percent in 2025:H1, buoyed by earthquake reconstruction and a wealth effect from high gold prices.  The current account deficit was 1.7 percent of GDP in the four quarters to 2024:Q2, after 1.3 percent in the year to 2025:Q2, and it remains well-funded; gross international reserves reached US$184 billion  October 31. The financial system has stayed healthy.

But still-high inflation leaves the economy vulnerable and carries costs. The longer it takes to reanchor inflation expectations at a low level as envisaged by the CBRT, the higher the likelihood of a shock that refuels inflation, jeopardizing growth and financial stability. Furthermore, as the period of adjustment lengthens, reform fatigue may grow and inflation expectations may level or rise again, necessitating larger policy adjustments—with higher associated short-term growth costs to reach targets. At the same time, elevated inflation undermines financial sector deepening and general market efficiency, as shown by falling maturities for bank lending and the growing gap between corporate and SME profitability. It also adds to income and wealth disparities, including and asset price appreciation that disproportionately benefits high-income households.

OUTLOOK AND RISKS

The forecast envisages a smaller fiscal consolidation in 2026, which would loosen the overall policy mix. Based on announced policies and assuming continued revenue strength and expenditure restraint, the 2026 fiscal forecast projects the fiscal deficit at 3.7 percent of GDP, which is equivalent to a slightly negative cash fiscal impulse. In line with market expectations, monetary policy is expected to remain contractionary: interest rate cuts are expected to continue, but falling inflation expectations will support positive ex ante real rates around the current level while quantitative measures should remain in place, dampening monetary easing. Price and incomes policies are expected to be close to CPI inflation. Finally, as noted in the October 2025 WEO, energy prices are assumed to be stable and external demand to remain relatively subdued.

In the near term, GDP growth is expected to remain solid and inflation should continue to fall gradually. A sequential moderation in the second half would bring 2025 growth to around 3.5 percent. Falling policy rates and a less contractionary fiscal stance would support demand in 2026, with resulting stronger investment and consumption pushing growth to 3.7 percent. Inflation at end-2025 is forecast at 33 percent, above the CBRT target of 24 percent.  Looking ahead, moderate wage growth and, as inflation falls, waning inertia will gradually bring down inflation. But an economy operating close to full capacity will slow this process and unfavorable recent inflation readings could indicate that current policies may not be tight enough to support further disinflation. Headline CPI inflation is thus estimated to reach 22 percent at end-2026. Boosted by midyear tourism receipts, the current account deficit would be around 1.4 percent of GDP in 2025, and remain at a similar level in 2026. Sustained depositor confidence and still-strong gold prices would allow continued modest reserves accumulation.

Inflation is projected to remain in double digits, and economic growth to fall short of its potential. Inflation would further decline, but stay double digits in the medium term. At such elevated levels, inflation weigh on investment and productivity, keeping GDP growth around 3.7 percent, below its pre-GFC trend. Benign commodity prices and external financial conditions are expected to keep the current account deficit moderate, but dollarization would remain high.

Risks have receded since last year, though they are still tilted to the downside. With demand strong and inflation expectations still not anchored completely, a shock—to energy prices, the exchange rate, or global risk aversion—could raise inflation expectations and spark higher inflation. A shift in domestic depositor behavior, particularly a shift toward gold or alternative assets, difficulties rolling over rising foreign exchange (FX) corporate debt, remain key vulnerabilities. Consumption could be affected by a gold price correction. The outlook also remains exposed to geopolitical shocks, a slowdown in tourist arrivals, or weak European growth. Trade risks, however, appear balanced, with limited direct exports to the U.S. and potential gains from trade diversion. On the upside, slowing growth could reduce price pressures more than expected, and rent increases may now have run their course, which would bring inflation down more quickly.

PUTTING TÜRKIYE ON A LOWER-RISK AND HIGHER GROWTH PATH

Additional policy effort is needed to bring inflation in line with the CBRT’s targets and strengthen resilience to shocks. Announcing and implementing a decisive and coordinated shift to tighter policies would help rebuild confidence and set inflation expectations on a clear downward path. Building on this year’s fiscal consolidation will be key and should be supported by higher real policy rates, greater exchange rate flexibility, and prudent incomes policies. This, together with a stronger social safety net, would offset the costs of prolonged high inflation on the economy and firmly place Türkiye on a more resilient and robust trajectory.

A lower-risk and higher-growth trajectory, however, would require tolerating short-term growth costs. Given that sacrifice ratios (i.e., magnitudes of output contraction needed to achieve disinflation) tend to rise as inflation falls, further demand compression will be necessary to bring inflation to the CBRT’s targets. The higher growth cost from tighter policies and rapid disinflation would be offset by a reduction in vulnerabilities and a sustainable convergence to Türkiye’s higher pre-COVID 2005–20 growth trajectory. Structural policies could help lower growth costs while reigniting productivity growth and reducing external vulnerabilities.

FISCAL POLICY

Accelerating disinflation and reducing risks will require continuing this year’s welcome fiscal consolidation. Fiscal measures above the baseline of around 1 percent of GDP in 2026 and 0.6 percent in 2027, along with lower interest payments, would reduce the fiscal deficit to 2.6 and 1.8 percent of GDP, respectively. This would lower domestic demand pressures, reinforcing tighter monetary and incomes policies. Revenue measures will be essential, including rationalizing generous corporate tax expenditures and incentives, simplifying the VAT structure by harmonizing rates across a broader base, and further improving tax compliance through digitalization, increased audits, and better coordination among revenue agencies. Expenditure cuts, such as phasing out energy subsidies while protecting vulnerable households and slowing absorption of non-essential capital spending, should also play a role. To minimize second round effects on inflation, noninflationary measures should be implemented first, while subsidy and VAT reforms could wait, in the context of strong implementation of the recommended tighter package of fiscal and monetary policies, until durable disinflation is underway. Recent reforms to reduce government contributions to the pension scheme are a step in the right direction, and ongoing initiatives to improve management of SOEs and PPPs should be continued.

Resources could be reallocated toward social goals. As inflation stabilizes, the deficit should return to the authorities’ 3 percent of GDP medium-term target, which remains appropriate given Türkiye’s low and sustainable level of public debt. Lower inflation and interest payments, as well as higher revenue from measures taken in 2026–27, would open around 1 percent of GDP in fiscal space that could be directed toward social priorities offsetting the increase in the cost of living that has disproportionately affected the poor. These could include cash transfers to vulnerable households, taking advantage of Türkiye’s strong targeting system, and changes to taxes and subsidies that would remove obstacles to greater labor force participation, particularly for women.

MONETARY AND EXCHANGE RATE POLICIES

Türkiye’s monetary policy framework has achieved important successes. Along with the policy rate, the current framework relies on quantitative tools such as credit growth ceilings and dedollarization targets, as well as exchange rate intervention. This flexible framework has brought down inflation without jeopardizing financial stability, and has allowed rapid responses to shocks. Moreover, the CBRT recently introduced a welcome distinction between inflation forecasts and targets, effectively introducing a nominal anchor. Building on this, CBRT communications now acknowledge the deterioration in sequential inflation outcomes and have appropriately signaled hawkishness, thus improving policy predictability.

Nonetheless, the context is challenging, and the use of multiple tools complicates CBRT communications and inflation expectations formation. Low corporate and household leverage and easy substitution into FX and, for large companies, borrowing from abroad, weaken monetary policy traction. Moreover, the effect of currency appreciation on inflation is reduced by high and sticky services inflation. Quantitative tools have supported disinflation, but they are less transparent than policy rates, they can potentially send conflicting signals, and they generate uncertainty about the CBRT’s potential response to shocks. This blurs the monetary stance and hinders communication, complicating loan pricing and expectations formation.

Achieving the CBRT’s inflation targets requires higher real rates, complemented by a framework firmly centered on the policy rate.

• Sequential inflation above levels consistent with CBRT’s targets, still-strong credit growth, and resilient aggregate demand warrant a higher real policy rate trajectory. This could be achieved by returning the policy rate to mid-2025 levels and postponing rate cuts until sequential inflation is consistent with CBRT targets.
• Dedollarization targets weaken interest rate transmission and credit growth ceilings distort bank portfolios, including by exempting credit cards, which have boosted consumption growth and inflation. They should be phased out before reducing the policy rate.
• Going forward, communication should aim at clearly explaining triggers for rate action. This will help to reanchor expectations.
• Reforms to protect central bank independence would also improve policy predictability and credibility.

Exchange rate policy should focus on smoothing excessive volatility that could dislodge inflation expectations. Foreign exchange intervention (FXI) has helped smooth lira volatility and respond to shocks that could destabilize inflation, but a sustained period of lira strength will eventually raise the risk of overvaluation and sudden adjustments. Macro adjustment aimed at bringing down inflation will reduce the need for FXI by helping reanchor inflation expectations. As this occurs and as reserve buffers recover, greater lira flexibility should be allowed. If high rates attract speculative inflows, reserve accumulation ceilings can add volatility, reduce carry trade attractiveness, and strengthen buffers.

INCOMIE POLICIES

Fully aligning wage and price setting with the disinflation strategy will reduce inflation inertia. Backward-looking indexation in wage setting at all levels , including of public sector wages, contributes to inertia and is thus an obstacle to disinflation; this should be phased out in favor of adjustments in line with forecast inflation. Regulated and administered prices (including public service tariffs) should be aligned in a forward-looking manner with underlying costs, avoiding one-off catch-up adjustments.

FINANCIAL POLICIES

The financial sector remains healthy, and the authorities have shown the ability to act swiftly and forcefully in the event of market stress. Banking sector profitability has declined from peak levels but remains in line with historical performance. Capital ratios and liquidity buffers remain adequate, and nonperforming loans, though rising, are appropriately provisioned. The share of FX deposits appears to have stabilized, and the authorities have skillfully phased out FX-protected deposits (so-called KKMs). Following financial market stress in March, the CBRT relaxed liquidity buffers, swiftly restoring financial stability and reassuring markets of the effectiveness of its policy toolkit.

While risks are broadly lower, FX liquidity risks need to be monitored. These risks stem from high dollarization and rising corporate FX indebtedness. At the same time, the level of gross reserves remains below the Fund’s reserve adequacy metric. Policy rates high enough to bring inflation down would also help contain FX demand, and the CBRT should continue to ensure that FX reserve requirements are set commensurate with potential risks. While appropriate for the time being, FX surrender requirements can be eased cautiously as FX liquidity conditions and inflation expectations improve, but lira short-selling restrictions should remain in place until broader financial liberalization is achieved.

The authorities should build on recent progress to strengthen supervisory frameworks. Recent changes to risk weights bring the supervisory framework closer to Basel standards and improvements to onsite supervision are welcome, and the authorities should continue to recognize and address credit and systemic FX liquidity risks. Banks calculate capital adequacy under market rates, but forbearance measures using older exchange rates could be dropped. Further enhancing the financial safety net, including bank resolution frameworks, and a timely review of emergency liquidity assistance would reinforce resilience. Finally, continued efforts to close crypto data gaps; monitor emergent risks, particularly from stablecoins; and integrate them into macroprudential frameworks are important to safeguard stability.

STRUCTURAL POLICIES 

The growth cost of disinflation can be partly offset by productivity-enhancing reforms to labor and product markets, as well as legal frameworks. Tertiary education incentives could be better aligned with labor market needs, digital and vocational training expanded, and links between universities and the private sector strengthened.  To support productivity across the economy, improvement in areas such as stronger protection of property rights, contract enforcement, and judicial integrity would be helpful, alongside reforms to product market regulations and anti-corruption efforts. Targeted measures for small- and medium-size enterprises (SMEs)—such as regulatory reforms, an SME-specific insolvency regime, and improved monitoring and support from the SME Development Organization—would address their productivity challenges and constrained access to finance, promoting inclusive economic growth.

Finally, reducing Türkiye’s vulnerability to global energy price fluctuations would enhance resilience. Notable progress has been achieved in expanding the share of renewables in the electricity sector. Wind and solar energy now comprise 22.4 percent of total generation, lowering the current account’s sensitivity to energy price shocks. The authorities’ ambitious goal of raising renewable capacity from 32 to 120 gigawatts by 2035 would raise renewables to around half of electricity generation, further diminishing reliance on hydrocarbons and strengthening the current account. The recently enacted climate law sets the foundation for Türkiye’s Emissions Trading System which is expected to align incentives effectively and mitigate potential adverse impacts of the EU Carbon Border Adjustment Mechanism.

The IMF team is grateful to the authorities and private sector counterparts for their kind hospitality and constructive and fruitful discussions.

[1] Authorities’ definition. Under the IMF definition, the deficit has fallen from 5.0 to 3.6 percent of GDP.

TAMPA, Fla. — Europe must move quickly to craft a large-scale strategy for space-based data centers or risk ceding a potential pillar of future digital infrastructure to global competitors, according to the European Space Policy Institute (ESPI).

The independent think tank highlighted a surge of activity in the United States and China to advance in-orbit cloud computing, including growing interest from SpaceX’s Elon Musk and other tech giants exploring space to ease artificial intelligence’s soaring processing and energy demands.

According to a report ESPI published Nov. 18, about 70 million euros ($81 million) of private capital has flowed into space-based data center ventures, or directly relevant enabling components, over the past five years.

They include lunar data storage startup Lonestar of Florida and Washington-based Starcloud, which recently deployed its first small satellite. 

Speculative discussions turn into tangible R&D

At around 60 kilograms, the Starcloud-1 spacecraft carries an Nvidia processor that is designed to run AI models in orbit, including variants of Google’s Gemini. 

However, to scale into commercially meaningful capacity, Starcloud and many other orbital-processing ventures call for kilometers of solar arrays and giant radiators in orbit to shed gigawatts of heat.

This sheer scale highlights one of the most formidable engineering challenges in deploying full-scale orbital compute, ESPI noted. Despite major advances in recent years, launch affordability, thermal management and in-orbit assembly remain major barriers.

While Europe has produced early building blocks, from ESA’s PhiSat AI processing missions to a feasibility study funded by the European Union, ESPI pointed to how others are moving quickly toward operational systems. 

NASA manages more than two dozen AI-driven edge computing projects, including experiments on the International Space Station to process sensor readings in space, rather than sending raw data back to Earth. 

China, meanwhile, has launched the first 12 satellites of its planned Three-Body Computing Constellation, envisioned as a 2,800-satellite AI computing mesh that performs heavy processing in space to reduce latency and downlink bottlenecks.

Powering AI

According to McKinsey analysts, as much as $6.7 trillion of investment could be required in data centres by 2030, of which about $5.2 trillion is driven by AI workloads, if adoption and technology cycles continue on their current path.

“There is an increasing need in orbit for storage and processing in space for in-situ operations,” Analysys Mason research director Claude Rousseau said via email, “and to complement terrestrial-based data centre markets. 

“Given the strong demand from government customers for connectivity, it is a natural fit to launch space data centres in various forms to meet their growing needs for sovereignty of operations, coupled with an increase in use of AI and to strengthen data security.”

Musk, who also leads the advanced-model startup xAI, said in October that an upcoming V3 generation of Starlink broadband satellites, set to fly on SpaceX’s in-development Starship, could be scaled up to operate as orbiting data centers, linked via high-speed lasers.

“SpaceX will be doing this,” he added.

Speaking at the Italian Tech Week conference in Turin last month, Amazon and Blue Origin founder Jeff Bezos predicted gigawatt-scale data centers would be deployed in space between 10 and 20 years.

Amazon also owns cloud computing giant Amazon Web Services and is deploying a low Earth orbit broadband constellation called Amazon Leo to take on Starlink.

ESPI said Europe risks becoming dependent on foreign orbital compute capacity without swift, coordinated action.

To avoid falling behind, the think tank recommended that the European Union:

• Launches a European Space-Based Data Centre initiative as part of the 2028–2034 Horizon Europe Moonshot Projects.
• Uses the European Space Agency’s General Support Technology Programme (GSTP) and its Advanced Research in Telecommunications Systems (ARTES) program as public-private testbeds for maturing the enabling technologies.
• Establishes a phased roadmap that extends beyond R&D toward commercial orbital compute deployment.

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A US federal judge has signalled concerns about ordering the break-up of Google’s advertising business, as courts in monopoly cases shy away from mandating Big Tech companies split themselves up.

Leonie Brinkema, a federal district judge in Virginia, in April ruled Google had “wilfully” monopolised parts of the digital ads market.

The Department of Justice, which brought the case, has requested Google parent Alphabet be ordered to spin off elements of its ads business.

But in a final hearing on Friday about the so-called remedies to be imposed to address the monopoly, Brinkema said the DoJ’s request was a “dramatic change” that would not be as “easily enforceable” as the resolution Google has proposed.

Brinkema said she was “concerned about the timing of all this” because a court-ordered break-up would likely be delayed while Google probably pursued a lengthy appeal. “Time is of the essence,” she added.

Her decision will be critical for Google. Its core search and ads business generates more than $50bn in quarterly revenue — half the total sales of parent company Alphabet. This revenue helps finance the rest of its empire from its DeepMind artificial intelligence lab to Waymo self-driving taxis.

Brinkema’s April ruling found Google illegally dominated online advertising through its control over the technology online publishers use to sell ad space, and the biggest exchange on which businesses bid for ads.

The DoJ argues Alphabet should be ordered to sell the ad exchange and if necessary implement a phased divestiture of the technology online publishers use to sell ad space.

Google has offered “behavioural” remedies as an alternative, including sharing its advertising exchange’s bid data with competitors, integrating technology with an alternative advertising tool and installing a monitoring trustee.

Brinkema’s decision, which the judge said she would probably issue next year, will follow several recent orders in high-profile competition cases that have come down in favour of Big Tech.

This week, a federal judge decided in Meta’s favour in a case brought by the US Federal Trade Commission, which had sought to unwind the group’s acquisitions of Instagram and WhatsApp.

Google has also fought a separate DoJ case, which convinced a court the company had illegally dominated online search including by paying Apple and others billions of dollars to be their default search provider.

However, the judge in September rejected prosecutors’ request that Google be forced to sell its Chrome browser and instead imposed a package of less-stringent remedies.

Brinkema seemed open to arguments, also made in the earlier case, that judgments may become obsolete in the fast-moving tech industry by the time divestitures are fully implemented.

Matthew Huppert, a DoJ lawyer, told Brinkema that only a divestiture could ensure Google, which for years put the industry “under its thumb”, does not “re-monopolise” the market.

So-called behavioural remedies alone “would freeze the status quo in place”, Huppert said, warning the court that Google has the “wherewithal” to test their bounds in “every conceivable way”.

Karen Dunn, the lawyer representing Google, likened the DoJ’s request to a “grenade” that would cause disruption for customers and higher prices.

She also stressed a potential buyer for Google’s ad exchange had not been identified — a notion Brinkema seized upon, arguing she was “concerned” a potential divestiture was at a “fairly abstract level”.

The “court has to be far more down to earth and concrete”, Brinkema added.

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Billionaire investor Bill Ackman is preparing a public listing of his hedge fund company Pershing Square Capital Management in a stock market debut that could come early next year.

Ackman had told some existing investors in his $21bn in assets hedge fund and begun speaking with advisers about the listing plans, said two people briefed on the matter. The listing could come as early as the first quarter of 2026, said one of those people.

The people cautioned that the talks were at a preliminary stage and could ultimately be delayed or not lead to a public offering depending on market conditions. Pershing Square declined to comment.

An IPO of his investment firm would culminate a more than decade-long pursuit by Ackman to turn Pershing Square from a volatile hedge fund partnership into a broader financial institution he has compared to Berkshire Hathaway.

Ackman is one of the world’s best-known hedge fund managers with large stakes in corporate giants including Uber, Alphabet, Amazon and Hilton. His hedge fund has returned 17 per cent for the year to November 18, buoyed by this year’s rally in tech stocks and a surge in the value of long held bets in US housing giants Fannie Mae and Freddie Mac.

Pershing Square differentiates itself from other hedge fund managers by holding concentrated positions in just a few stocks.

Roughly a decade ago, Ackman raised about $4bn through a London-listed public vehicle, which has transformed into the bulk of Pershing Square’s overall assets as investors pulled money from his traditional hedge fund strategies.

Last June, Ackman began laying the groundwork for a possible IPO by selling a 10 per cent stake in Pershing Square at a valuation just over $10bn to a group of investment firms, family offices and billionaire investors.

The high valuation rivalled those assigned to private equity groups that have gone public in recent years, including TPG and CVC Capital Partners. TPG listed in early 2022 at a roughly $10bn valuation, while CVC had a €15bn valuation when it listed last year.

Pershing Square’s primary business is overseeing a closed-end fund that manages more than $15bn of assets and pays Ackman’s hedge fund a 1.5 per cent management fee on those assets and lucrative performance fees. If the IPO is successful, it would be the first big hedge fund to go public in more than a decade.

Ackman previously tried to launch a US closed-end fund called Pershing Square USA last year, but a deal fizzled out after fundraising expectations cratered from about $25bn to $2bn.

The award was presented by the Hispanic Motor Press at the 2025 Los Angeles Auto Show’s AutoMobility LA media days, where the top vehicles were chosen by a distinguished jury panel of Hispanic automotive journalists, content creators, and industry experts. Hyundai’s IONIQ 9 stood out among finalists for its three-row versatility, innovative EV technology, advanced safety features, and family-friendly appeal — making it the clear choice for this coveted title.

“We are incredibly honored to receive the ‘EV of the Year’ award from the Hispanic Motor Press,” said Claudia Marquez, COO, Hyundai Motor America. “This recognition reflects our commitment to delivering electric vehicles that prioritize safety, convenience, and innovation for families, aligned with the priorities of the Hispanic community. The IONIQ 9 brings long-range capability, ultra-fast charging, and a spacious, tech-forward interior, making EV ownership effortless and rewarding.”

“This is the electric vehicle today’s Hispanic families have been waiting for,” said Ricardo Rodriguez-Long, founder and president, Hispanic Motor Press. “The IONIQ 9 offers generous interior space for every passenger, quiet and confident performance, and the latest driver-assistance and connectivity features. Built on a proven EV platform with quick-recharge capability, it delivers real-world practicality with the refinement and value our community expects.”

Hispanic Motor Press Awards
The Hispanic Motor Press Awards is the premier U.S. Hispanic awards program for the Latino community to educate and help pre-select the best vehicle options in the market. The jury panel is comprised of an independent group of national Hispanic automotive journalists, content creators, and influencers who assess vehicles while considering key purchase drivers for Hispanic families in quality, reliability, style, safety, technology, and value. The annual awards include the Hispanic scholarship program for communications, automotive, and technology college students.

Hyundai Motor America
Hyundai Motor America offers U.S. consumers a technology-rich lineup of cars, SUVs, and electrified vehicles, while supporting Hyundai Motor Company’s Progress for Humanity vision. Hyundai has significant operations in the U.S., including its North American headquarters in California, the Hyundai Motor Manufacturing Alabama assembly plant, the all-new Hyundai Motor Group Metaplant America, and several cutting-edge R&D facilities. These operations, combined with those of Hyundai’s 850 independent dealers, contribute $20.1 billion annually and 190,000 jobs to the U.S. economy, according to a published economic impact report. For more information, visit www.hyundainews.com.

Hyundai Motor America on Twitter | YouTube | Facebook | Instagram | LinkedIn | TikTok

SOURCE Hyundai Motor America

WASHINGTON, Nov 21 (Reuters) – A group of major asset and wealth management firms has agreed to pay $25.5 million to resolve claims in U.S. court that they conspired to restrict job mobility and suppress wages for thousands of financial professionals.

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American Century and another defendant, Montage Investments, previously reached non-prosecution agreements with the U.S. Justice Department over related allegations, according to the filing.

In a statement, American Century said it was pleased to resolve the workers’ lawsuit in Kansas and “remains committed to fair and honest competition in compliance with all laws and regulations.”

A lawyer for Mariner Wealth and Montage did not immediately respond to a request for comment, and neither did lead attorneys for the plaintiffs.

The asset and wealth management firms denied any wrongdoing.

The plaintiffs said the Mariner defendants have about $65.9 billion in assets under management and the American Century defendants manage about $230 billion in assets.

The plaintiffs said the settlement offers significant and immediate relief and avoids the risk and costs of continuing litigation.

Settlement payments will be based on factors including length of employment, the court papers showed.

Lawyers for the plaintiffs estimated an average payout of about $3,700 per person. Eligible employees will receive payments automatically.

The settlement also said the plaintiffs’ lawyers will ask for up to one-third of the fund for legal fees, or about $8.5 million.

The case is Jakob Tobler et al v. 1248 Holdings LLC, U.S. District Court for the District of Kansas, No. 2:24-cv-02068-EFM-GEB.

For plaintiffs: George Hanson of Stueve Siegel Hanson, and Rowdy Meeks of Rowdy Meeks Legal Group

For Mariner: Jonathan King of DLA Piper

For American Century: John Schmidtlein of Williams & Connolly

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By Kristina Hooper

AI relies on rare-earth elements to grow its infrastructure – and the U.S. relies on AI to grow GDP

Capital spending on AI has been a key driver of U.S. stock market returns and continues to exceed expectations, comprising a large portion of S&P 500 SPX capital expenditures.

Jason Furman, a Harvard University economics professor, calculated that 92% of total U.S. GDP growth for the first half of 2025 could be attributed to AI spending. Without AI-related data-center construction, he reported, GDP growth would have been an anemic 0.1% on an annualized basis.

Given so much riding on the AI capex boom, it’s important to consider what could derail U.S. economic growth and the U.S. stock market

One major risk is access to rare earth elements. Limited rare-earth access could present the U.S. with challenges similar to what it faced in the 1970s from its dependence on oil.

Rare-earth elements are used extensively in artificial intelligence, including disk drives, cooling servers and especially semiconductor fabrication. Artificial intelligence has enormous computational and memory demands, which is why high-capacity, high-performance semiconductors are the linchpin of the AI build-out. Rare earths are also integral for national security – used in radar, lasers and satellite systems.

From the 1960s to the 1990s, the U.S. was the leader in rare-earth elements production. In 1995, two decisions were made that had far-ranging consequences, dramatically changing the trajectory of U.S. leadership in rare earth elements.

First, the U.S. approved China’s purchase of U.S. rare-earth magnet company Magnequench from General Motors, thereby acquiring a highly advanced technology that arguably would have taken many years to develop.

Second, China applied to join the World Trade Organization, ultimately enabling it to sell its rare-earth elements to a global market. China was able to sell at a lower cost than the U.S., contributing to the closure of the U.S. mining company that produced rare earth elements, MP Materials Corp. (MP), in 2002.

MP Materials was reopened for national defense use in 2017. U.S. production has since ramped up, with rare-earth production reaching 45,000 tons in 2024 – yet that’s still less than one-sixth of China’s production.

Yet the U.S. Department of Defense’s lofty goal of meeting defense-related demand for light- and heavy rare earths by 2027 may not be achieved, given America’s rare-earth mining and processing limitations. Even if it is, significant commercial demand, including the enormous AI build-out, will not be met.

China controls the supply

China controls around 70% of the world’s rare earth resource output and about 90% of the world’s rare earth processing capabilities. Access to rare-earth elements has been a key bargaining chip in U.S. trade negotiations with China.

As a result, the U.S. has been increasing efforts to diversify its rare-earths supply and gain reliable and adequate exposure to these elements through its allies. Australia and Canada, for instance, have significant rare-earth resources that can help support America’s rare-earth element needs.

New technologies may also lessen or eliminate the need for rare-earth elements in various uses and make rare-earth element recycling more efficient (currently, just 1% of rare-earth elements are recycled). In addition, U.S. government policies can discourage or at least disincentivize demand for rare earth element-intensive products such as electric vehicles, as the Trump administration has done by eliminating EV tax credits.

Rare earth element independence should be as high a priority for the U.S. as energy independence was 50 years ago. Until there’s a viable alternative to the China-dominated rare-earth supply chain, AI capital spending – and both the U.S. economy and stock market – are vulnerable. Accordingly, stock investors should pay attention to trade deals and policymakers’ comments, and consider supply-chain risks when evaluating AI-related investments.

Kristina Hooper is chief market strategist at Man Group, which manages alternative investments. The opinions expressed are her own.

More: Big Tech is spending on power for AI – whether Washington functions or not

Also read: AI has real problems. The smart money is investing in the companies solving them now.

-Kristina Hooper

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