(FORTUNE Magazine) – WORRIED ABOUT recession? Fear not, say the nation's top economists. Their consensus is that GDP will grow 2% this year, just a hair below last year's 2.1%. They base that optimism on continued strength in U.S. exports and the ongoing surge in capital spending financed by round after round of cost cuts. Also, economists don't detect the kinds of imbalances that have crippled the economy in the past--like the office-building glut and huge corporate-debt overhang of the early 1990s.

But even Alan Greenspan can't abolish the business cycle. Ultimately the economy will contract for a couple of quarters, and there will be our recession. Some worry that it will happen sooner rather than later. That minority opinion could become more widespread when disappointing first-quarter earnings soon start appearing, the result of a blustery stay-at-home winter. NatWest Securities strategist Peter Canelo observes that Wall Street's expectations for the first quarter will be low anyway, so companies will be tempted to throw a lot of costs into the quarter in order to look much better later in the year. The possible result: Dismal profits could spook investors into selling off stocks.

Economists point to some even more potent threats to this expansion. Chief among them: weak consumer spending and Washington's self-induced budget crisis. Age is a factor too. The expansion, which began in March 1991, is now about a year older than average, and there are many signs that it is long in the tooth: less demand for autos, houses, and other goods. If those trends continue, profit margins will shrink, leading to more cost cutting and layoffs.

Mellon Bank chief economist Richard Berner gives recession a 20% to 25% chance of occurring--up from the 15% odds he gave for 1995. One of the most pessimistic forecasters--Ed Yardeni of the securities firm Deutsche Morgan Grenfell--pegs the odds of recession at 60%, in part because more people have been filing for unemployment insurance.

The most tangible source of worry is the beleaguered mall shopper. Principal and interest payments on credit cards, loans, mortgages, and such have climbed sharply in the past year and now consume nearly 17% of disposable income, not far from the peak of 18% in 1989. Shortly after that high point, consumers yanked in their belts, contributing mightily to the recession of 1990-91. If you include auto lease payments, the current debt figures look even more menacing. Yet the binge goes on. Merrill Lynch economists calculate that in 1995 consumers financed an "unprecedented" 60% of their spending increases with credit cards and loans. That means 60 cents of every additional dollar they spent in 1995 over 1994 didn't come from earnings or savings but from borrowing. Usually only a third of increased spending is so financed at this stage of the business cycle.

Still, most economists don't think consumer debt is yet at a crisis stage. "We are up to our armpits in debt, but not up to our eyeballs," says Fleet Financial Group chief economist Nicholas S. Perna. Slow-to-modest income growth and a healthy stock market are likely to keep consumer spending edging up.

Economists' optimism is also based on the assumption that at some point Congress and the President will deal with their big bugaboo and agree on some plan to balance the federal budget by 2002. In fact, the parties aren't terribly far apart on the details--Republicans want bigger tax cuts and more Medicare restraint than the President. The biggest hurdle, agreeing that the budget be balanced in seven years rather than ten, has been cleared.

The market's greatest worry now is not whether there will be a budget deal but how meaningful it will be. If the deal delays most of the painful reductions in spending to the year 2000 or so, investors will rightfully doubt the commitment, fearing that politicians will get weak-kneed as the days of reckoning approach. In anticipation of such cowardice a few years down the road, the bond markets could push interest rates higher this year. Inflation expectations would rise too because continued high government deficits stimulate demand without adding to productive capacity. Disconsolate investors might thus hoist yields on 30-year U.S. bonds as high as 7%, vs. the 6% to 6.5% rate we've enjoyed of late. That would hurt the housing market, bite into profits, and reduce capital spending plans.

Will the Fed be able to head off a recession should these gloomy scenarios begin? Some critics contend that the Fed always acts too late. They have a case. Greenspan, preoccupied with inflation, may have been tardy in cutting interest rates prior to the recession of the early 1990s. Only lately does he seem more attuned to the requirements of expansion. The Fed lowered rates at the end of January to stimulate growth--not simply because inflation had been tamed, the reasoning it had used to explain last year's rate cuts. He recently hinted to the markets that he might be willing to do it again. With hyperactive financial markets, debt-heavy consumers, and political paralysis in Washington, it's a tricky hand for the chairman to play. Still, most economists are betting that he'll win.