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    The path to ‘Made in India’

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    These economists say artificial intelligence can narrow U.S. deficits by improving health care

    The potential positive shock of AI on the U.S.’s fiscal health could help lower the fiscal deficit, according to a study from the Brookings Institution.
    The report forecasts AI could lower the U.S. budget deficit by 1.5% of GDP by 2044.
    The incoming Trump administration raises questions as to how AI might be implemented in delivering health care services.

    Just_super | E+ | Getty Images

    Can artificial intelligence be so transformative as to solve one of the U.S. economy’s biggest problems: its skyrocketing fiscal deficit? According to three economists at the Brookings Institution, the answer is yes — AI could prove a positive “critical shock” for the country’s fiscal health. 
    A working paper released last month by the Center on Regulation and Markets at Brookings projects that under the most optimistic scenario, AI could reduce the annual U.S. budget deficit by as much as 1.5% of gross domestic product by 2044, or about $900 billion in nominal terms, lowering annual budget deficits by roughly one fifth at the end of the 20-year span.

    “The use of AI presents the rare — possibly unique — opportunity to expand access to health care information and services while simultaneously reducing the burden on the conventional health care system,” the paper’s authors, Ben Harris, Neil Mehotra and Eric So, wrote.
    While the authors name various channels through which AI can increase productivity, they highlight AI’s potential to dramatically improve health care services and public health. 
    Not only could AI make American health care more efficient, it might also “democratize” access to the system by giving people more options for preventative medical care — “changing the ‘who’ and ‘where’ of health care,” the economists wrote.
    AI could ease deficit pressure
    The economic impacts of a more efficient health care system, and giving individuals more paths to manage their own health, could ease pressure on the government’s yawning fiscal deficit, which topped $1.8 trillion in the fiscal year ended Sept. 30. The national debt stands at $36 trillion.
    But adopting AI in health care services isn’t a sure thing. Plenty of impediments stand in the way of widely implementing AI, largely tied to regulation and incentives.

    Economists’ outlook on AI and health care is “a mix of enthusiasm and despair,” said Ajay Agrawal, a professor at the University of Toronto’s Rotman School of Management ,where he researches the economics of artificial intelligence.
    “Enthusiasm because there’s probably no sector that stands to benefit more from AI than health care. … But there’s friction due to regulation, due to incentives —  because of the way things are structured and how people are paid for things — and friction due to the associated risks and liabilities,” Agrawal said. 
    “So yes, there’s lots of implementation challenges, and at the same time, the prize for succeeding at this is very big,” Agrawal said. 
    Health care and the deficit
    The federal government spent an estimated $1.8 trillion on health insurance in 2023, or around 7% of GDP, according to the Congressional Budget Office. From 2024 to 2033, the CBO forecasts federal subsidies for health care will total $25 trillion, or 8.3% of GDP. 
    The problem is that so much health care spending in the U.S. isn’t tied to treatment or patient outcomes. Instead, about a quarter of all spending, public and private, is estimated to go toward administrative functions.
    “Nearly every industry in the U.S. has experienced substantial improvements in productivity over the last 50 years, with 1 major exception: health care,” according to a report by McKinsey analysts. 
    This is one area where AI could improve operations, according to the Brookings Institution economists. Basic tasks such as appointment scheduling can be automated, while tasks such as patient flow management and preliminary data analysis can also be done by AI programs.
    While the three economists acknowledge that the impact of AI on federal spending is still “highly uncertain,” the coauthors believe it could ultimately be more transformative for the economy than past technological leaps, such as the use of personal computers in the 1990s. The current AI shock “feels different. This isn’t your typical technological shock,” Harris told CNBC.
    AI is affecting “how people receive health care,” how the drug industry discovers new products and how researchers make medicine more precise, Harris said.
    Disease and death rates
    In particular, Harris underscored AI’s impact not just on productivity, but also its potential to transform the cost of care and the rates of illness, disease and death. 
    “Such changes could have profound impacts on Social Security and public health program outlays,” he and his coauthors wrote.
    To be sure, there is also the potential that AI advancements could counterintuitively increase federal spending if the average lifespan increases as a result of the technology. Not only could improved technology lead people to seek more medical care, longer lifespans might also result in a larger retired population.
    But the Brookings paper takes a more optimistic tack, predicting one of AI’s largest benefits will result from accelerating the efficacy of preventative care and disease detection. This will create a healthier population that will need less medical intervention, the authors wrote — and might also increase labor force participation rates if a healthier workforce stays employed for more years.
    “AI’s ability to improve diagnostic accuracy can not only improve patient outcomes but also reduce wasteful spending on inappropriate treatments,” the economists said. “From a more optimistic perspective, existing AI systems may lower expenditures on all health spending, including Medicare, with cost reductions occurring through several channels—with personalized medicine being a prominent example.”
    Evaluating whether AI can ultimately translate into a positive or negative shock on fiscal policy will depend on what stage of the age distribution it affects, Agrawal said. Whether AI is “having its bigger impact on retired people, or around working people,” will answer how the numbers play out, Agrawal said. 
    AI proliferating already
    So far, diagnostics has shown the most advances and greatest potential in applying AI in health care. Agrawal cited AI’s influence throughout almost all the steps of diagnostic care, from receiving input data, medical imagery such as X-rays and MRIs, as well as doctor notes, charts. 
    “In almost every area of diagnosis, AI has, in some cases, already demonstrated what they call ‘superhuman performance’ — better than than most docs,” Agrawal said. 
    AI has also shown “significant promise” in better optimizing treatment plans for patients through data analysis. Machine intelligence can develop more effective and less costly plans for individual patients, according to the authors of the paper. 
    Agrawal believes it’s too early to say whether public or private health systems will take better advantage of AI. In the U.S., private insurers have generally been more keen on AI technology associated with preventative treatment, he said. There’s been less interest in using AI in diagnostic applications, possibly that might lead to a rise in cases and more treatment, he said. 
    “There aren’t clear economic incentives for the private sector to [implement] that,” said Agrawal. “In the public sector, even though there are incentives, there are a lot of frictions associated with privacy on the data side.” 
    He believes public-private partnerships will be key in driving the rollout of AI across health care. 
    The public health care sector “will need very strong incentives in order to drive change, because otherwise, everybody is in their routine. There’s a lot of resistance to change,” Agrawal said. 
    “So to get over that resistance, you need a very strong motivator, and the private sector generally provides a much stronger motivator, either because the users are trying to reduce cost, or the creators of the technology are trying to generate profit,” he continued. 
    Large tech companies have already pushed forward in developing large language models specifically for health care services. Google’s AI system, Articulate Medical Intelligence Explore (AMIE), mimics diagnostic dialogue. Its Med-Gemini platform uses AI to aid in diagnosis, treatment planning and clinical decision support. Amazon and Microsoft have their own projects underway to expand the application of AI programs in health services.
    Outlook under Trump 
    President-elect Donald Trump’s second term could alter the rollout of AI in health care, and ultimately, its economic impact. Trump has vowed to reduce government spending and formed an outside panel called the Department of Government Efficiency designed to “dismantle Government Bureaucracy, slash excess regulations, cut wasteful expenditures, and restructure Federal Agencies.” Public health funding is one area that could reduced funding, frustrating the ability to roll out AI applications.  
    “Now, it is possible that if you do see a retreat in the federal government’s role in providing health care to people, that more efficient AI could help compensate for the cost of that retreat,” said Harris. “If AI means that each dollar goes farther, then I think we’ve timed everything in a sort of lucky way.” 
    There’s also the chance that rolling back regulations under a second Trump administration could expedite the implementation of AI across health care. 
    “Many people are fearful of reducing regulation because they don’t want technologies that are immature to be brought into the health care system and harm people,” Agrawal said. “And that’s a very legitimate concern. But very often what they fail to also put into their equation is the harm we’re causing people by not bringing” in new technologies, he added. 
    “Some areas need a lot more technical development, but there are some domains in diagnosis that are already ready to go, and it’s just regulation that’s preventing them from being used,” Agrawal said.  More

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    German inflation unchanged at 2.4% in November

    BERLIN (Reuters) – German inflation remained flat in November despite expectations of a second consecutive increase interrupting the downward trend in Europe’s troubled largest economy.Inflation stayed at 2.4%, the federal statistics office said on Thursday.Analysts polled by Reuters had expected a reading of 2.6% this month, after German consumer prices, harmonised to compare with other European Union countries, had risen by 2.4% year-on-year in October.Core inflation, which excludes volatile food and energy prices, was at 3.0% in November. The German data comes ahead of the euro zone inflation release on Friday. Harmonised inflation in the euro zone is expected to rise to 2.3% in November from 2.0% the previous month, according to economists polled by Reuters.Investors are watching the inflation data for Germany and the euro zone as a whole to gauge the next steps of the European Central Bank.The ECB is expected to cut interest rates further at its upcoming meetings, but the scale and speed of that course is unclear. More

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    Brazil’s Haddad says income tax reform to be neutral, take effect in 2026

    BRASILIA (Reuters) – Brazilian Finance Minister Fernando Haddad said on Thursday that a reform proposed by the government to increase income tax exemptions for the middle-class will be fiscally neutral and analyzed by Congress in time for it to take effect in 2026.After weeks of delays, Brazil on Wednesday announced a package to contain mandatory spending, accompanied by an unexpected income tax reform aimed at easing the burden on the middle-class to mitigate potential negative public backlash.Haddad told a press conference that the move to increase the exemption threshold for those earning up to 5,000 reais a month had an estimated 35 billion real ($5.89 billion) fiscal impact, which would be fully neutralized by compensatory measures. The government said the compensation would come from setting a higher effective tax rate for the wealthiest. According to Haddad, those earning more than 600,000 reais per year will face an effective income tax rate of 10%.The current effective tax rate is 4.2% for the top 1% of earners and 1.75% for the top 0.01%, government figures showed.When questioned about introducing the measure now despite its expected implementation only in 2026, Haddad said the decision was to “finalize all measures this year” to make “our project clear”.He had previously said the issue would only be addressed next year.MARKET TURMOILBefore the official announcement, reports of an increase in the income tax exemption from the current 2,824 reais soured market sentiment. The currency plummeted to its weakest level on record, while interest rate futures surged.”The fiscal tightening measures failed to live up to expectations and reinforce the idea that political commitment to stabilizing the public finances is lacking,” Capital Economics’ deputy chief emerging markets economist Jason Tuvey said.The real weakened past 5.98 per dollar in spot trading on Thursday.Haddad said the U.S. dollar had been strengthening globally, and told the press conference that inflation in Brazil is expected to end the year within or very close to the official target range of 1.5% to 4.5%.The government also outlined that the mandatory spending control package announced on Wednesday is projected to generate a fiscal impact of 327 billion reais between 2025 and 2030.The measures, which have yet to be formalized and voted by Congress, also include tighter restrictions on the BPC social benefit, aimed at assisting the elderly and disabled, and enhanced oversight of the Bolsa Familia welfare program.($1 = 5.9377 reais) More

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    UK tenants hit by highest inflation in September

    $1 for 4 weeksThen $75 per month. Complete digital access to quality FT journalism. Cancel anytime during your trial.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

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    Turkish cenbank sees high food prices hitting November inflation

    ISTANBUL (Reuters) – The Turkish Central Bank said on Thursday that the impact of food prices on consumer inflation will remain prominent in November, while monthly consumer inflation excluding food displays a more favorable track.In minutes of last week’s policy meeting, where it kept its key rate steady at 50%, the bank said signs of an improvement in services inflation have become more apparent while monthly price increases in the services group lost pace in October. More

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    Explainer-Could the ECB help France if borrowing costs surge further?

    Barnier’s government could fall before Christmas, perhaps as soon as next weak, and French borrowing costs soared this week on prospects of political instability over the failure of the 2025 budget.The following looks at the ECB’s options to help France.WHAT COULD THE ECB DO FOR FRANCE?The ECB’s Transmission Protection Instrument (TPI) allows it to buy an unlimited number of bonds from any euro zone country experiencing a disorderly and unwarranted tightening of its financing conditions.The risk premium investors demand to hold French debt rose to a 12-year high of roughly 84 points this week but that level is not far from the 80 basis points hit this summer, when the current bout of political instability started. SO, IS THE ECB GOING TO STEP IN? Probably not. Ultimately it is the Governing Council’s decision. But France fails to meet several key criteria, which makes an ECB intervention legally contentious.First off, the market move is driven by political turmoil and concerns over budget finances, making it difficult to claim it is not warranted.Spreads over German debt, the de facto benchmark for the euro zone, have not risen much further than before the parliamentary election in the summer, so it is difficult to claim it is disorderly. France is also under an EU excessive deficit procedure, failing a key ECB criteria. It is running large budget deficits and its debt level is rising, so it is also hard to argue it has “sound and sustainable macroeconomic policies,” as demanded by the ECB.”We think the ECB would be unlikely to activate the Transmission Protection Instrument and buy French government bonds if the budget is rejected and the government collapses,” Barclays (LON:BARC) said a note.     However, the ECB did leave itself a loophole saying that these criteria are merely an “input” in the decision making and they will be “dynamically adjusted” in light of unfolding risks.Still, to date, no ECB policymaker has even suggested the bank should help France. IS THE RECENT MARKET MOVE EXTREME?When TPI was created in 2022, Italy complained that its spreads were too high. The Bank of Italy governor complained that spreads in excess of 200 basis points were unwarranted and it should be no more than 150 basis points. The ECB, however, did not budge and to date TPI has never been used.Nomura predicts that a French government collapse could push the spread to 100 to 120 basis points. “Fiscal and political uncertainty would surge,” it said. “Nobody, not even the domestic (investors), would be ready to catch the falling knife.”WHAT ABOUT CONTAGION?The ECB has not publicly explored this idea raised by financial market participants. However, the ECB could have the legal power to help other countries in case they suffered from a disorderly and unwarranted rise in borrowing costs because of turmoil in France.Indeed, ECB board member Isabel Schnabel recently argued that bond buys are a powerful tool for stabilising financial markets during periods of stress. “Stabilising financial markets typically requires only short-lived interventions,” she said. “Purchases can be limited in volume and unwound quickly, which also helps limit moral hazard.”    However, Italian spreads have not moved much this week, suggesting no fear of contagion for now.In case of contagion, the ECB could also cut interest rates somewhat quicker than markets now think to compensate for a market driven rise in financing conditions. More

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    Donald Trump, accidental master of game theory

    Standard DigitalStandard & FT Weekend Printwasnow $29 per 3 monthsThe new FT Digital Edition: today’s FT, cover to cover on any device. This subscription does not include access to ft.com or the FT App.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print editionWeekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysisFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysisGlobal news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts10 monthly gift articles to shareGlobal news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print editionEverything in PrintWeekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysisPlusEverything in Premium DigitalEverything in Standard DigitalGlobal news & analysisExpert opinionSpecial featuresFirstFT newsletterVideos & PodcastsFT App on Android & iOSFT Edit app10 gift articles per monthExclusive FT analysisPremium newslettersFT Digital Edition10 additional gift articles per monthMake and share highlightsFT WorkspaceMarkets data widgetSubscription ManagerWorkflow integrationsOccasional readers go freeVolume discountFT Weekend Print deliveryPlusEverything in Standard DigitalFT Weekend Print deliveryPlusEverything in Premium Digital More