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Forecaster: The Good, the Bad & the Ugly…

Fathom Consulting in London launches a new global economic modeling system on Monday which focuses on 22 countries and looks at the interaction between the real economy and financial markets.

Its findings will offer support for the bulls on US growth, worry those who expect China to keep driving the global economy and scare holders of peripheral euro zone debt.

Growth in 2011 will be lower than in 2010, but it is expected to regain momentum in the second half of the year and into 2012, driven increasingly by stronger US growth,” said Danny Gabby, a director at Fathom Consulting in London in an interview with CNBC on Monday.

“US growth is expected to exceed 3 percent both this year and next, supported by accommodative monetary and fiscal policy,” he said.

Chinese growth will, according to Fathom, come in at just 7 percent in 2011 “as monetary tightening and some renminbi appreciation begin to bite. This would still constitute a soft landing”

“The combination of tighter monetary policy and a buyers strike for their debt leaves the peripheral euro area countries with no choice but to default,” said Gabby.

“Although the euro may be rallying in the immediate aftermath of the ECB’s decision to embark on a rate tightening cycle, we see it falling sharply against the dollar in the second half of 2011 and through 2012, with a 40 percent chance that it will break through parity with the dollar,” he said.

“The longer the ECB and the EU attempt to face down the inevitable logic of debt arithmetic, the greater the chance of contagion to Spain and beyond,” Gabby said. "Spain is set to test the markets' appetite for its debt to destruction over the next year or two. And while the fundamentals do not support a Spanish default, Spain’s room for maneuver is much more limited than many seem to suppose.”

“A loss of market confidence could quickly see the situation unraveling,” said Gabby.

Contact Europe: Economy

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