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Recessions in Hungary and Romania deepened and Slovakia’s gross domestic product contracted for a second quarter, depleting government coffers as the countries struggle to keep their deficits in check.

Gross domestic product in Hungary shrank an annual 7.6 percent in the second quarter, Romania’s GDP contracted 8.8 percent and Slovakia’s output dropped 5.3 percent, according to state statistics offices today.

Recessions in the former communist economies left their governments struggling to live up to European Union budget rules as rising unemployment drains public funds and depletes tax revenue. For Romania and Hungary, agreements on international bailouts are at risk, while Slovakia, the only euro region member, was warned by the European Commission for exceeding the bloc’s 3 percent budget gap limit.

“The pressure on budgets will intensify next year when unemployment is set to peak,” said Juraj Kotian, an economist at Erste Group Bank AG in Vienna, before today’s GDP reports. “The automatic stabilizers like welfare payments will eat up much more budget revenue and the governments won’t have much ammunition left for fiscal stimuli.”

Deepening Recession

The Czech Republic’s recession probably also deepened last quarter. The country’s statistics office may report the economy shrank 4.2 percent, according to a Bloomberg survey, putting pressure on the state budget before October elections.

The Hungarian forint strengthened 0.3 percent to 270.3 against the euro at 5:33 p.m in Budapest, from 269.55 late yesterday. The Romanian leu gained 0.2 percent to 4.212 the euro, while the Czech koruna was little changed at 25.809.

There are some signs Europe’s recession is waning. Slovakia’s economy shrank at a slower pace than in the first three months and beat the median in a Bloomberg survey. Germany and France today reported that their total production grew, as two of the region’s largest economies exit recession.

“We expect the eastern European economic decline to slow in the second half of the year,” Zoltan Torok, an economist at Raiffeisen International Bank-Holding AG in Budapest, said in a phone interview today.

Signs of a western European recovery “provide hope that the already climbing export figures finally result in better manufacturing output” in the east, Janos Samu, a Budapest-based analyst at Concorde Securities, said in a note to clients today.

Even so, eastern European government efforts to keep budgets in check, as rising unemployment drains funds, will hinder a recovery next year, said economists including Nicolaie Alexandru-Chidesciuc, chief analyst at ING Bank Romania in Bucharest.

‘Will Take Time’

Slovakia’s 2009 budget deficit will be almost three times the government’s original target of 2 fast cash personal loans.1 percent of GDP. In the Czech Republic, the budget gap reached 76.2 billion koruna ($4.1 billion) in the first seven months, double the full-year target.

Slowing household spending in the Czech Republic and Slovakia came after their unemployment rates rose to more than a three-year high as companies cut jobs to adjust to shrinking markets.

“It will take time until the Slovak economy returns to a pre-crisis level,” when it was one of the fastest growing economies in the 27-nation EU, said Jan Toth, an economist at UniCredit Bank in Bratislava. “We expect the budget deficit won’t fall next year.”

‘Reshaping’ Government

Slovak Finance Minister Jan Pociatek said he wants to “reshape” the government and cut spending to avoid raising income taxes as the government aims to bring the budget deficit below the EU limit by 2012. An earlier target date may create “a social disaster,” he said in an interview yesterday.

The ministry plans to trim the shortfall to 5.5 percent of GDP in 2010 from “slightly above” 6 percent of GDP this year, he said. The plan, which also calls for streamlining tax collection, envisages the gap at 4.2 percent of GDP in 2011.

Czech Finance Minister Eduard Janota has said he will propose a deficit as wide as 209 billion koruna in 2010, when the central bank expects the economy to grow 0.7 percent.

The interim Cabinet of Prime Minister Jan Fischer pledged to refrain from any overhaul of public spending as parties start campaigning before October parliamentary elections.

Face Pressure

In Romania and Hungary, governments face pressure to keep spending in check to meet the terms of bailout packages. Fellow EU bailout recipient Latvia had a 1.7 billion-euro ($2.4 billion) payment suspended on its 7.5 billion-euro loan until parliament committed to an austerity package.

Even so, the countries’ efforts to stick to fiscal stringency measures may pay off in the long run and encourage international investors to place their funds in emerging European assets. What’s more, the countries may emerge from the crisis stronger than when they entered it, economists said.

Cuts in Hungary and Romania “have exacerbated the recession, but, if sustained, would imply substantially reduced vulnerabilities going forward that should bolster investor sentiment and contribute to lower interest rates,” Radoslaw Bodys, an economist at Bank of America Corp.’s Merrill Lynch unit.

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The U.K. housing market improved in July as the biggest proportion of real-estate agents and surveyors in two years saw increases in home values, the Royal Institution of Chartered Surveyors said.

The number of respondents saying prices dropped exceeded those reporting gains by 8 percentage points, the smallest margin since August 2007, RICS said in its monthly survey today in London. Separate reports showed mortgage approvals jumped 23 percent in June, home values increased in the same month, and retail sales rose in July from a year earlier.

The RICS report adds to evidence that the rout in residential property may have ebbed. The Bank of England last week extended its bond purchase program to 175 billion pounds ($288 billion) to repair “fragile” financial market conditions and underpin signs the economy is emerging from the worst recession in a generation.

“We’re seeing an improvement in the housing market, but it’s worth remaining cautious as we’re still at a relatively low level,” said David Page, an economist at Investec Securities in London. “There’s been a gradual improvement in bank lending but there’s a great element of uncertainty there and it’s critical for the housing market.”

The number of real estate professionals saying prices dropped last month exceeded those reporting gains by 8 percentage points, the narrowest margin since August 2007, RICS said in London. The Department for Communities and Local Government said the average house prices rose 1.6 percent in June to 191,423 pounds, 10.7 percent less than a year earlier.

Mortgage Approvals

Loans for house purchase reached 45,000 last month, with a total value of 5.9 billion pounds, the Council of Mortgage Lenders, which represents the nation’s home loan providers, said today in London. The number of loans dropped 6 percent from a year earlier.

“With the buyers continuing to return to the market and a lack of stock available prices are being forced up when compared to the beginning of the year, a trend which is likely to continue in the short term,” James Perris of De Villiers Surveyors in central London, said in RICS’s statement payday loans.

The group last week forecast house prices will rise this year after the decline in values from their peak two years ago and lower borrowing rates lured buyers.

RICS’s survey showed London had the biggest improvement of the 12 regions it tracks, with a net balance of 29 realtors and surveyers saying prices rose in the last three months, followed by Scotland, with a net balance of 15.

Loan Rates

Central bank data published today showed little change in mortgage rates. The average Britons pay for a two-year fixed- rate loan with a 25 percent deposit, one of the most popular types of mortgages, was little changed at 4.46 percent, the Bank of England said today. Charges for standard variable rate mortgages were unchanged.

The Bank of England last week increased its bond-purchase plan by 50 billion pounds to 175 billion pounds, saying the recession has proved deeper than previously thought. It held the benchmark interest rate at a record low of 0.5 percent.

Governor Mervyn King will present the bank’s new quarterly growth and inflation forecasts tomorrow in London.

“Given still very tight credit conditions, poor economic fundamentals and the fact that any sustained rise in prices would lead to affordability ratios moving back up, we suspect that house prices are highly likely to suffer relapses over the coming months,” Howard Archer, an economist at IHS Global Insight In London, said in a note today.

A separate report today from the British Retail Consortium showed same-store retail sales in July rose by 1.8 percent from a year earlier. The BRC, which represents 80 percent of U.K. retailers, said total sales increased by 3.6 percent.

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Ben S. Bernanke deserves another term as Federal Reserve Chairman based on his success in battling the financial crisis, said Princeton University Economist Paul Krugman, a winner of the Nobel Prize.

“He’s earned the right to a second term,” Krugman, 56, said yesterday in an interview in Kuala Lumpur. “He turned the Fed into the financial intermediary of last resort. When the banking system failed to deliver capital where it was needed, he put the Fed into the markets.”

Debate over the fate of Bernanke, 55, is intensifying as he nears the end of his four-year term as chairman on Jan. 31. While Krugman and economist Nouriel Roubini have voiced support for the former Princeton economist, others including Anna Schwartz have said a lack of transparency exacerbated the financial crisis.

“I think Bernanke has done a really good job,” Krugman said. “He failed to see this coming and he was behind the curve in early phases. But he’s been really very good in the sense that it’s really very hard to see how anyone could have done more to stem this crisis.”

As his terms draws near an end, Bernanke has written in the Wall Street Journal and appeared on television to defend the unprecedented actions he took during the financial crisis.

“In a financial crisis, if you let the big firms collapse in a disorderly way, it will bring down the whole system,” Bernanke said last month at a town-hall-style meeting in Kansas City, Missouri, taped for broadcast on PBS television. “I was not going to be the Federal Reserve chairman who presided over the second Great Depression.”

Zero Rates

Under Bernanke’s stewardship, the Fed cut the benchmark lending rate to as low as zero and expanded credit to the economy by $1 lowest fee payday loans.1 trillion over the past year.

Joseph Stiglitz, another Nobel Prize-winning economist, said on Aug. 5 that he expects a “very slow recovery” and that a replacement for Bernanke should be considered.

“There are lots of potholes in the road,” Stiglitz, a Columbia University economics professor, said in an interview. “There are problems in commercial real estate. We know that there will be more foreclosures in the mortgage market” and “we know we don’t know the state of the banks.”

Squared Off

Economists Roubini and Schwartz squared off in the New York Times last month over Bernanke’s fate. Roubini, the New York University professor who predicted the credit crisis, voiced support for the central banker, while Schwartz, co-author with Milton Friedman of a history of U.S. monetary policy, wrote that the chairman should be replaced because of policy missteps and a failure to clearly articulate the bank’s goals.

The Fed also helped rescue Bear Stearns Cos. and American International Group Inc. last year while backing creation of the $700 billion Troubled Asset Relief Program.

Schwartz said Bernanke failed to explain why the Fed supported the rescue of Bear Stearns and not Lehman Brothers Holdings Inc., whose bankruptcy in September 2008 added to the severity of the credit crisis.

President Barack Obama said last month that Bernanke has done “a fine job” as Fed chairman while declining to comment on the possible reappointment of the former Princeton University economist, which is subject to Senate approval.

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Consumer credit in the U.S. declined in June for a fifth straight month as banks maintained more restrictive lending terms and households remained reluctant to borrow money for major purchases.

Consumer credit fell $10.3 billion, or 4.92 percent at an annual rate, to $2.5 trillion, according to a Federal Reserve report released today in Washington. Credit dropped by $5.38 billion in May, more than previously estimated. The series of declines is the longest since 1991.

Stagnant wages and falling home values mean consumer spending, about 70 percent of the economy, will take time to recover even as the recession eases. Incomes fell the most in four years in June as one-time transfer payments from the Obama administration’s stimulus plan dried up, and Americans saved almost $125 billion more of their incomes in June than a year earlier.

“This string of declining credit should continue as long as the economy eliminates workers at an elevated pace,” said Richard Yamarone, director of economic research at Argus Research Corp. in New York. “We’re 20 months into the recession and the economy is still losing a quarter-of-a-million jobs per month.”

Economists had forecast consumer credit would drop $5 billion in June, according to the median of 33 estimates in a Bloomberg News survey. Projections ranged from declines of $11.9 billion to $1 billion. The Fed initially reported that consumer credit decreased by $3.2 billion in May.

Credit Cards

Revolving debt, such as credit cards, fell by $5.25 billion in June, a record 10th straight drop, according to the Fed’s statistics. Non-revolving debt, including auto loans and mobile- home loans, declined by $5.04 billion. The Fed’s report doesn’t cover borrowing secured by real estate.

While the downturn abated in the second quarter as government stimulus programs started to kick in, the three-month period capped the worst retrenchment by consumers since 1980. Gross domestic product shrank at a better-than-forecast 1 percent annual pace after a 6.4 percent drop the prior three months, the Commerce Department figures showed last week.

The economy was forecast to shrink at a 1.5 percent pace, according to the median estimate of 78 economists surveyed by Bloomberg.

Government spending rose at a 5.6 percent pace last quarter, the most since 2003, as President Barack Obama’s $787 billion stimulus program began to take effect. The funds are aimed at helping states retain workers, financing infrastructure projects and reducing tax payments.

Consumer Spending

Consumer spending, meanwhile, fell at a 1.2 percent pace following a 0.6 percent increase in the prior quarter. Purchases slid 2 percent since the peak at the end of 2007 –the most since a 2.4 percent decline in the 1980 recession.

U.S. personal incomes, which include interest income, dividends, rents and other payments as well as wages, tumbled 1.3 percent in June, more than forecast and erasing the previous month’s gain, figures from the Commerce Department showed Aug cheap credit report. 4 in Washington. Spending rose 0.4 percent in June as prices climbed. Adjusted for inflation, purchases fell 0.1 percent, the report showed.

Wages and salaries, which drive recoveries in spending, fell 4.7 percent in the 12 months through June, the biggest drop since records began in 1960, the Commerce figures showed.

Decreasing pay is not the only hurdle for consumers. Plunging home prices and stocks reduced household net worth by a record $13.9 trillion from the third quarter of 2007 through this year’s first quarter, according to figures from the Fed.

Job Losses

The pace of U.S. job losses slowed more than forecast last month and the unemployment rate dropped for the first time in more than a year, the Labor Department said today in Washington. Payrolls fell by 247,000, after a 443,000 loss in June, and the jobless rate unexpectedly dropped to 9.4 percent from 9.5 percent, which was the highest in 26 years.

The White House warned the jobless rate is still likely to reach 10 percent, and with companies from Boeing Co. to Verizon Communications Inc. continuing to cut costs, any rebound in hiring may not come until 2010.

“Consumers were still battening down the hatches in June trying to get out from under the mountain of debt that they had accumulated in the good times,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.

Default Rates

Credit-card defaults climbed to a record in June as more consumers fell behind on payments because of rising unemployment and bankruptcies, according to Fitch Ratings statistics released on July 31. Charge-offs, the cost of loans that card issuers have given up on collecting, rose to 10.79 percent last month, 64 percent higher than the same period last year, the Fitch Prime Credit Card Index showed.

Fitch said the rate of increase “slowed significantly” from earlier this year, providing “a glimmer of hope that charge-offs may soon plateau” in coming months. Loans delinquent at least 60 days declined to 4.31 percent in June from 4.45 percent in the previous month, Fitch said.

MasterCard Inc., Visa Inc., Capital One Financial Corp., Discover Financial Services and American Express Co. cut marketing by $636.8 million in the latest quarter as rising U.S. unemployment contributed to record defaults and depressed consumer spending.

Sales of cars and light trucks fell to a 9.7 million annual rate in June from a 9.9 million annual rate the month before, according to Woodcliff Lake, New Jersey-based industry research firm Autodata Corp.

In July, sales rose to an 11.3 million pace, the highest since September, Autodata reported this week. That compares with February’s 9.1 million rate, which was the lowest since 1981. Auto sales will likely rebound further as a federal “cash-for- clunkers” program boosts demand for cars.

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Australia’s central bank kept interest rates unchanged for a fourth month as evidence mounts that the lowest borrowing costs in half a century are helping the economy rebound from the global recession.

Reserve Bank Governor Glenn Stevens left the overnight cash rate target at 3 percent in Sydney today, as forecast by all 19 economists surveyed by Bloomberg News.

Australia’s economy is stronger than the central bank forecast a few months ago, “with both consumer spending and exports notable for their resilience,” Stevens said today. The governor signaled last week he may not wait for unemployment to peak before raising rates, spurring speculation Australia will increase borrowing costs faster than most other nations.

Stevens’ “focus is now on the exit strategies from the extraordinarily accommodative monetary and fiscal policies in place,” Rob Henderson, chief markets economist at National Australia Bank Ltd. in Sydney, said ahead of today’s decision.

The Australian dollar traded at 84.33 U.S. cents at 2.40 p.m. in Sydney from 84.40 cents just before the decision was announced. The two-year government bond yield fell 1 basis point to 4.37 percent. A basis point is 0.01 percentage point.

Signs of rising consumer and business confidence “suggests the risk of a severe contraction in the Australian economy has abated,” Stevens said. “The present accommodative setting of monetary policy is appropriate given the economy’s circumstances.”

Retail Sales

Reports published today showed retail sales climbed more than economists forecast in the second quarter and house prices surged for the first time more than a year.

Stevens, who warned last week about the risks of a house- price bubble after slashing borrowing costs by a record 4.25 percentage points between September and April, said on July 28 that “hopefully” policy makers will find “a suitably timely way of returning to normal when the right time for that comes.”

The governor today dropped references made in previous statements that policy makers have scope to reduce borrowing costs further if needed to stoke domestic demand.

Investors predict the benchmark rate will be 150 basis points higher in a year, a Credit Suisse Group AG index based on swaps trading showed at 2:43 p.m. in Sydney. By contrast, the Bank of England’s key rate will be raised by 106 basis points and the U.S. Federal Reserve’s rate by 90, according to separate indexes. A basis point is 0.01 percentage point.

Roubini’s View

Nouriel Roubini, the New York University economist who predicted the global financial crisis, told a mining conference in Western Australia yesterday that Australia’s central bank may be one of the first to increase borrowing costs business card.

An index measuring the weighted average of prices for established houses in the eight capital cities climbed 4.2 percent from the first quarter, when it declined a revised 1.5 percent, the Australian Bureau of Statistics said in Sydney today. The median estimate of 15 economists surveyed by Bloomberg News was for a 2 percent gain.

Stevens said last week it will be “quite disturbing” if the cuts to borrowing costs result in higher prices and not many more new dwellings, and may increase the risk of “problems of over-leverage and asset-price deflation down the track.”

Retail sales, which jumped 2 percent in the June quarter, beating the 1.3 percent median estimate of analysts surveyed by Bloomberg, account for as much as 25 percent of gross domestic product, Macquarie Group Ltd. economist Ben Dinte said today.

Government Spending

Household spending helped Australia’s economy avoid a recession after GDP rose 0.4 percent in the first quarter from the previous three months, when it shrank 0.6 percent. Second- quarter growth figures will be released on Sept. 2.

“Stronger dwelling activity and public spending will start to provide more support to overall demand soon, and is likely to firm into 2010,” Stevens said today.

The central bank, which predicted in May that GDP would contract 1 percent this year before expanding 2 percent in 2010, will publish revised forecasts on Aug. 7.

Australia was “the last OECD country to go into this problem and we’re probably going to be the first OECD country to come out of it,” Michael Smith, chief executive officer of Australia & New Zealand Banking Group Ltd., said in a Bloomberg television interview today.

A surge in consumer spending is boosting earnings at companies including David Jones Ltd. The nation’s second-largest department store chain said on June 30 that earnings after tax will rise by between 20 percent and 30 percent in the six months ending July 25.

Prime Minister Kevin Rudd’s government has distributed A$12 billion ($10.1 billion) in cash handouts to households this year and is spending A$22 billion to upgrade roads, railways, ports and schools.

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President Barack Obama said it will take “many more months” for the U.S. to fully recover from the recession as employers continue to eliminate jobs.

The president said in his weekly address on the radio and the Internet that yesterday’s government report on the gross domestic product showed the recession was “even deeper than anyone thought” when he took office in January. The stimulus legislation passed by Congress in February and measures to stem home foreclosures have helped stem the slide, he said.

“Important steps that we have taken over the last six months have helped put the brakes on this recession,” Obama said. “But history shows that you need to have economic growth before you have job growth.”

Obama is putting the economy back at the forefront of his remarks to the public as polls show it remains the top concern of Americans. Next week he’s heading to Elkhart, Indiana, for an event focused on his economic policies. Obama said earlier this week that the U.S. “may be seeing the beginning of the end of the recession.”

The Commerce Department reported yesterday that the gross domestic product shrank at a 1 percent annual pace in the second quarter, less than forecast, after a 6.4 percent drop in the first three months of the year. The economy has lost 6.5 million jobs since the recession began in December 2007, and economists surveyed by Bloomberg this month forecast the jobless rate will exceed 10 percent by early 2010. The Labor Department is scheduled to release the July unemployment rate Aug. 7. The June rate was 9.5 percent.

Jobs and Recovery

“As far as I’m concerned, we will not have a recovery as long as we keep losing jobs,” Obama said. “And I won’t rest until every American who wants a job can find one.”

The GDP report is a “an important sign that we’re headed in the right direction” as business investment stabilizes, which may lead to more hiring.

“That’s when it will really feel like a recovery to the American people,” he said cash advance lenders.

The revised government data showed that GDP has tumbled 3.9 percent since the second quarter of last year — the biggest drop since quarterly records began in 1947. GDP has fallen four straight quarters, the longest ever.

“I know that there are countless families and businesses struggling to just hang on until this storm passes,” Obama said. “But I also know that if we do the things we know we must, this storm will pass. And it will yield to a brighter day.”

In a July 24-28 poll by the New York Times and CBS News, 36 percent of Americans said the economy was the most important problem facing the country. Twelve percent cited health care.

Republican Address

In the Republican address, South Dakota Senator John Thune said the party is committed to an overhaul of the U.S. health- care system while criticizing Democratic proposals for being “government-run” and too expensive.

“The Democrats who control Congress have been spending money and racking up debt at an unprecedented pace,” Thune said. “Their plan for government-run health care would only make things worse.”

Thune said the proposals being considered in the House and Senate would cost more than $2 trillion. The Congressional Budget Offices has estimated the Congressional proposals will cost around $1 trillion.

The Republican alternative, Thune said, would let small businesses join together to buy health insurance plans for their employees, protect hospitals and doctors from lawsuits and extend tax benefits to people who don’t get insurance through their jobs.

“These and other commonsense solutions would provide real reform for our health-care system rather than the dangerous and costly experiment that Democrats are proposing,” he said.

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