* 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 (Reuters) - 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 2014.
“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.
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 Economics.
“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.”