Our Final "Virtual Route 66" for the Year: A Sampling of Our World

2025 is before us.   It has also been a challenging but hopeful year.     Our team is planning to be dark through the new year as we leave all with this, as we look forward to the privilege to serve in 2025.

 

Zanny Minton Beddoes Editor-in-chief

Our two covers this week feature an interview with the free-market maverick remaking Argentina, and an analysis of how Ukraine and its allies should approach talks with Russia. Javier Milei relishes his status as the bad boy of anarcho-capitalism (though you have to wonder if it has many good boys). Speaking to our Latin America correspondent, Kinley Salmon, Argentina’s president said that he considers “the state to be a violent criminal organisation that lives from a coercive source of income called taxes, which are a remnant of slavery”.  He campaigned wielding a chainsaw, but his economic programme is serious and one of the most radical doses of free-market medicine since Thatcherism. What is more, a year after he was elected, it seems to be working.

Mr Milei is enjoying his best moment since taking office. Brandishing that chainsaw, he has lopped off a third of public spending in real terms, halved the number of ministries and cut through the red tape. Inflation spiked at 25% a month after he devalued the artificially and unsustainably strong peso. It is now under 3% per month. The JPMorgan country-risk index, an influential measure of the risk of default, has fallen from around 2,000 when he became president in December 2023 to about 750 now, its lowest in five years.  The chainsaw is a bit cartoonish, however. Although Mr Milei is a larger-than-life character, running an exceptional country that has suffered more than most from a dysfunctional and predatory state, he has lessons for the world.

Here he is belting out his message. Mr Milei is often lumped in with populist politicians such as Donald Trump or Viktor Orban. In fact he comes from a different tradition. A true believer in open markets and individual liberty, he has a quasi-religious zeal for economic freedom.

We favoured an image that does less to distract from our use of one of the interview’s many arresting quotes as the title. The left detests Mr Milei and the Trumpian right embraces him, but in fact he is at odds with both. He has shown that the continual expansion of the state is not inevitable. And he is a rebuke to opportunistic populism, of the sort practised by Mr Trump. He believes in free trade and free markets, not protectionism; fiscal discipline, not reckless borrowing; and, instead of spinning popular fantasies, brutal public truth-telling. Much could go wrong in Mr Milei’s Argentina. Poverty is growing, the peso is overvalued and the president is a mercurial and explosive character. But, just now, Mileinarianism is worth watching.

Donald Trump has made clear that, as president, he will be impatient for the shooting to stop in Ukraine. At the same time, Russia’s grinding advance has exposed weaknesses in manpower and morale that could eventually lead to a collapse in Ukraine’s lines. In a conflict that once looked like a stalemate, peace talks beckon—and the common worry is that Mr Trump will use them to impose a disastrous deal on Ukraine.

Our first ideas sought to convey the arrival of diplomacy. In one, the missile is morphing into a fountain pen. In the other, two presidents are balanced on a shell. However, a deal would not be the end of the war. Ukraine and its allies should not expect Russia’s president, Vladimir Putin, to feel bound by its terms. He will surely hope that post-war Ukraine, consumed by infighting and recriminations against the West, will fall into his lap. If it does not, he could well conjure up a pretext to seize more territory by force.

The hawk of peace gets this message across, but it feels remote. The tank at a crossroads suggests a moment of decision is afoot, but it points to the battlefield rather than negotiations.   Capitulation to Mr Putin is not inevitable, nor even the likeliest outcome. It would be a public defeat for America and it would spill over into Asia, where the next administration is focusing. And Mr Trump would surely want to avoid the humiliation of being known as the man who lost Ukraine by being out-negotiated by Mr Putin. It is in his own narrow interest to forge a deal that keeps Ukraine safe for at least the four years of his term. In that time Ukraine can accomplish a lot.  To thrive, Ukraine will require political and economic stability, both of which will depend on being safe from Russian aggression. That is why the talks will turn on how to devise a credible and durable framework for Ukrainian security.

Here is the negotiating table. It is cold and wintry. Ukraine, sitting across from Russia, would be alarmingly exposed.  A ceasefire would present two competing visions of Ukraine’s future. Mr Putin’s calculation is that he will win from a deal because Ukraine will rot, Russia will re-arm and the West will lose interest. But imagine that, with Western backing, Ukraine used the lull to rebuild its economy, refresh its politics and deter Russia from aggression. The task is to ensure that this vision prevails over its grim alternative.

Cover image • View large image (“What Javier Milei can teach Donald Trump”) • View large image (“The least bad deal for Ukraine”)

Backing stories → Javier Milei: “My contempt for the state is infinite” (Leader) → Javier Milei, free-market revolutionary, speaks to The Economist (The Americas) → How to make a success of peace talks with Vladimir Putin (Leader) → How will Donald Trump handle the war in Ukraine? (Briefing)

The resistance, part two Democratic states are preparing for Donald Trump’s return But Mr Trump will be more prepared, too

Shots fired Tariff threats will do harm, even if Donald Trump does not impose them The risk of a trade war is uncomfortably high

Related → Does Donald Trump have unlimited authority to impose tariffs? → “Tariffers” v “traders”: the new contest for Donald Trump’s ear

The spy who purged me Donald Trump and Tulsi Gabbard are coming for the spooks The president-elect’s intelligence picks suggest a radical agenda

First shot Trump wastes no time in reigniting trade wars Canada and Mexico look likely to suffer

Looking for a new Illinois America’s rural-urban divide nurtures wannabe state-splitters What’s behind a new wave of secessionism

Jackson drama An FBI sting operation catches Jackson’s mayor taking big bribes What the sensational undoing of the black leader means for Mississippi’s failing capital

Politics and justice As Jack Smith exits, Donald Trump’s allies hint at retribution The president-elect hopes to hand the Justice Department to loyalists

Free exchange Why Black Friday sales grow more annoying every year Nobody is to blame. Everyone suffers

Podcast

Checks and Balance A conversation with Peggy Noonan Our weekly podcast on democracy in America. This week, the speechwriter and columnist on the age of Donald Trump

The key insights today: How will the S&P 500 fare next year? Europe faces headwinds in 2025 Electrification could jumpstart Europe's economy Clearlake Capital's José Feliciano on investing in datasets Briefings Brainteaser: How many US M&A deals do our analysts expect in 2025? Was this newsletter forwarded to you?  Sign up now.

The S&P 500 is forecast to return 10% in 2025

The S&P 500 is forecast to have its third-straight year of gains amid solid economic expansion and steady earnings growth, according to Goldman Sachs Research. The benchmark index of US equities is projected to rise to 6,500 by the end of 2025, a 9% price gain from its current level and a 10% total return including dividends (as of November 26), David Kostin, chief US equity strategist at Goldman Sachs Research, writes in the team's report. Earnings are predicted to increase 11% in 2025 and 7% in 2026.

Corporate revenue growth (at the index level) is typically in line with nominal GDP growth, according to Goldman Sachs Research. Our strategists' estimate of 5% sales growth for the S&P 500 is consistent with our economists' forecasts for 2.5% real GDP growth and for inflation to cool to 2.4% by the end of next year. Goldman Sachs Research's S&P 500 EPS forecasts for 2025 and 2026 are $268 and $288, in line with the median top-down consensus estimates of $268 and $288. However, these are below the bottom-up consensus (based on individual company earnings estimates made by equity analysts) of $274 and $308. According to Goldman Sachs Research's baseline macroeconomic outlook, the economy and earnings will continue to grow and bond yields will remain around current levels in the coming years. But there are a number of risks heading into 2025, including the potential threat of an across-the-board tariff and the potential of higher bond yields. At the other end of the spectrum, a friendlier mix of fiscal policy or more dovish policy from the Federal Reserve could result in higher returns. In case you missed it: Read our previous article on Goldman Sachs Research's outlook for the US economy in 2025.

The outlook for Europe in 2025

Goldman Sachs Research forecasts continued growth for the euro area in 2025 — but several factors will have a significant drag on the economy. Anticipated tariffs imposed by the US President-elect Donald Trump, high energy prices, and competition from Chinese manufacturing are expected to weigh on the bloc. Our economists predict areawide growth of 0.8% for 2025, notably below the consensus forecast of 1.2%. Even so, a euro-area recession is unlikely, Jari Stehn, Goldman Sachs Research's chief European economist, writes in the team's report. Consumer spending in the bloc is expected to recover given real rising incomes and elevated savings, and underlying inflation is declining. Goldman Sachs Research expects headline and core inflation to return to 2% by the end of 2025.

Some European economies are likely to prove more resilient than others. German GDP is expected to contract 0.3% and France's economy will shrink by 0.7%, while Spain's GDP (again outperforming) will increase by 2%. Given the outlook for subdued growth, Stehn expects the euro area unemployment rate to rise next year, reaching 6.7% by early 2026. Continued disinflation will lead to “rising pressures” for the European Central Bank to lower rates, he writes. Goldman Sachs Research expects the Governing Council to cut the deposit rate to 1.75% in July (from 3.25% in October). The UK economy, meanwhile, is forecast to expand 1.2% in 2025, up from an estimated 0.9% this year. While inflation is predicted to cool materially, several longer-term structural challenges are likely to be in focus. The country's limited fiscal flexibility and the trajectory of government debt may be under scrutiny. There's also more uncertainty around Britain's future trading arrangements with the US following Trump's re-election, even as the government is likely to make progress on trading relations with the EU.

How Draghi's plan for electrification could boost Europe's economy

Electrification, a key piece of the puzzle to reduce carbon emissions, could also boost the European economy. Europe should increase overall investment by about €800 billion ($867 billion) a year, according to a report on European competitiveness from Mario Draghi, former head of the European Central Bank. More than half of that sum would be for clean energy (€300 billion) and electric mobility (€150 billion). Draghi was asked by the EU to examine how to boost private investment and close the productivity gap with the US.

The cost of electricity is one of the reasons for the disparity in productivity between the US and Europe, Alberto Gandolfi, head of European utilities for Goldman Sachs Research, writes about Draghi's analysis. Europe's ability to compete with the US economy has worsened in recent decades, with the labor productivity gap widening to about 25% today from 5% in 1995, according to data from Eurostat and the US Bureau of Labor Statistics.  Meanwhile a typical large car manufacturing facility in Europe may pay an extra €500 million a year compared with a US competitor, while a chemical plant could face annual excess costs of €1 billion. “Electrification, thanks to low-cost renewable energy, could narrow the gap and lead to largely fixed power bills,” Gandolfi writes. Altogether, electrification is at the core of Draghi's plan. His analysis envisions approximately €3–€4 trillion in spending on electrification and energy transition over 10 years, or about a quarter of eurozone GDP. Goldman Sachs Research expects this to drive a capital expenditure supercycle in electrification infrastructure.

How Clearlake Capital's José E. Feliciano finds value across private markets

José  E. Feliciano (R.), Clearlake Capital's co-founder and managing partner, with Michael Brandmeyer, global head and chief investment officer of Goldman Sachs Asset Management's External Investing Group, on Goldman Sachs Exchanges

Despite a subdued dealmaking environment in the private equity industry, Clearlake Capital's José E. Feliciano sees interesting opportunities that the firm can invest in, thanks in part to Clearlake's flexible investment mandate. “We do see a reopening of the capital markets,” Feliciano, co-founder and managing partner of the investment firm, says in a conversation with Goldman Sachs' Michael Brandmeyer on Goldman Sachs Exchanges: Great Investors.  “We do think that there's going to be very selective opportunities in the buyout side. There's going to be really interesting opportunities in what we call special situations, things like carve-outs, turnarounds. And we do see idiosyncratic, distressed, or special situations where there are really interesting opportunities to buy companies or [access] those companies through debt or restructurings.” In particular, Feliciano sees opportunities to invest in the large proprietary datasets that are powering generative artificial intelligence. “The best example is probably within healthcare IT, where big datasets are generated,” he says. “That dataset is extremely important for that machine to learn and potentially translate to better outcomes, better predictability of outcomes, better forecasting, and hopefully in the case of healthcare, better treatment...So we think that AI ultimately will be a force for good.”