* Better growth ahead for world economy in 2014
* But improvement will likely be incremental
* Mood in markets hinges on U.S. outlook
* China set for another difficult year
By Andy Bruce
LONDON, Dec 29 The world economy should snap a
three-year stretch of slowing growth in 2014, although the
upturn over the next 12 months looks likely to be incremental
rather than a leap forward.
With stock markets rallying in the twilight days of this
year and recent indicators for major economies looking brighter,
confidence among investors and analysts is high going into 2014.
The U.S. Federal Reserve provided a concrete example of that
optimism earlier this month when it decided to start curtailing
its unprecedented monetary stimulus, based on the strength of
recent signals from the economy.
The International Monetary Fund, in its October set of
forecasts, expects global economic growth to pick up to around
3.6 percent in 2014, from roughly 2.9 percent this year.
Still, beneath the market fervour and reams of upbeat
analyst notes, the big structural problems and imbalances that
have dogged the world economy have not gone away.
Despite a couple of bright spots in the shape of Britain and
Germany, sickly banks and poor domestic demand will continue to
hold back Europe's heavyweight economies, even if many of them
have slowly started to grow again.
And for China, economists polled by Reuters over the last
few months expect another tricky year for the No.2 economy.
Beijing has repeatedly said it would accept slower growth as
it tries to wean the economy off dependence on investment and
exports as the big drivers and get domestic consumption going.
With Europe, China and the U.S. accounting for roughly
two-thirds of global output, most economists are convinced that
tepid growth will continue to characterise the world economy.
"In each of the three regions, growth is not gathering pace,
or only very slightly," said Herve Goulletquer, head of global
markets research at Credit Agricole CIB its his outlook for
"It is very difficult to defend the idea of a cyclical
mechanism of self-sustaining economic acceleration."
For industrial countries, Golletquer said that was partly
down to demographics, debt and technology shocks, but also
because real interest rates seem too high and difficult to cut.
The IMF predicts global growth will pick up to around 4
percent per year from 2015 through 2018, roughly the average
rate in the 10 years prior to the Global Financial Crisis.
HOPES PINNED ON U.S.
A raft of purchasing managers indexes due on Thursday will
provide detail on how the world's manufacturers have fared going
into the new year, with particular focus on the U.S. ISM survey.
Much of the upbeat mood in financial markets right now
reflects the improving outlook for the United States, which
looks on course for faster growth in 2014 after shaking off a
year of political impasse.
Economists expect confidence figures due on New Year's Eve
to show American consumers were in good spirits in December.
"Some significant headwinds remain - most notably the
inevitable slowing of the pace of inventory investment," said
Lewis Alexander, chief U.S. economist at Nomura.
"But the strong performance of the economy in recent months
gives us greater confidence that the long-anticipated cyclical
acceleration of U.S. growth is happening, and that asset markets
are likely to adjust to this new development."
Perhaps more so than other years, 2013 has shown how the
glut of easy central bank money from rich-world countries has
juiced stock markets in those places. But Chinese and Brazilian
stocks have been in the red.
Japan's Nikkei stock average ended at its highest
close in six years, up 56 percent so far in 2013, its best
annual performance since 1972, driven by the country's
aggressive fiscal and monetary stimulus.
However, Japan's stellar stock market gains and economic
growth both look set to slow in the new year as the impact of
the stimulus fades.
And the euro zone, while looking a lot more stable than it
did this time last year, remains the biggest question mark for
the global economic outlook.
"All in all there are some signs of stabilisation but the
risks to the growth outlook remain on the downside," said
Natascha Gewaltig, director of European economics at Action
"The European Central Bank is struggling with its
one-size-fits-all monetary policy, as the crisis has exposed the
difficulties presented by a monetary union across countries with
considerable structural differences."