Jay H. Bryson, global economist for Wachovia Corp., forecast fourth-quarter 2007 real gross domestic product would be 2.1 percent, followed by two percent in the first quarter of 2008, 2.5 percent in the second quarter, 2.9 percent in the third and three percent in the fourth quarter next year.

Bryson presented his economic outlook Tuesday during the 16th annual Card Collections Conference in Phoenix.

Consumer spending depends far more on consumer income than on home equity, Bryson said. Consumer income grew 3.5 percent in August, but "it probably won't stay at this level," he said.

Although the corporate bond market has been hurt by the subprime mortgage defaults, and $1.5 trillion worth of mortgage backed securities "could go bad," total global debt amounts to about $70 trillion. When including total bank credit outstanding worldwide, the balance rises to more than $100 trillion.

"If all $1.5 trillion defaults, it's only 1% of the total global debt and credit," Bryson said, "so it's not that big of an issue."

Household debt has soared, he conceded, "but it's not as bad as it looks because much of it is invested in housing. As interest rates fall, it makes the debt level more sustainable." Of $56 trillion in U.S. household net worth, 90 percent of it is home equity.

However, "we are skating close to the thin ice," and "there is a 30% to 35% chance of recession in the next 12 months," warns the economist.

With $50 billion to $60 billion in adjustable rate mortgages resetting interest rates each month, Bryson said, "we're not out of the woods yet. Expect more foreclosures," particularly with 2006 vintage mortgages signed with little or no documentation.

"As long as the economy grows," however, "delinquencies [for all types of consumer credit] will be moderate."

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