OLYMPIA — State revenue continues to drop, even though the recession probably ended during the summer, Washington’s chief economist Arun Raha said Thursday.

In a report to legislators, Raha revised downward by $238 million the amount of money he expects the state will collect during the current two-year budget cycle, which begin July 1.

The decline represents a small percentage of the state’s $29.6 billion general fund and is slight compared to sharp drops in revenue the state experienced during the past year as a global recession took hold.

Lawmakers and Gov. Chris Gregoire will have to trim spending to match the lower revenue projection, but majority Democrats said the Legislature can wait until the 2010 session, instead of convening a special session this year.

“1 think we can get through to the end of the year,” said Sen. Craig Pridemore, D-Vancouver.

Lawmakers passed a 2009-11 budget in April after closing a $9 billion deficit. Just two months later, another shortfall began developing because of the sour economy.

The governor’s office directed agencies to curtail hiring, travel and equipment purchases over the summer. The governor’s budget director, Victor Moore, said that the state is “a little less than $200 million in the negative,” but has nearly two years to adjust spending.

“I think we’re OK to put together our proposals and balance the budget,” he said.

Republicans agreed there is no need for a special session, though they said Democrats should work on a budget-cutting plan to present to the Legislature when the lawmakers convene in January.

“I do think the budget writers will need to work in November and December, so we have something to work on early in the session,” said Kalama Rep. Ed Orcutt, the lead Republican on the House Finance Committee.

In a written statement, Gregoire said she was planning a revised budget that accounts for the revenue drop.

“Although we believe the recession has bottomed out, it will take some time for revenues to recover,” Gregoire stated. “I am preparing a supplemental budget request that accounts for the revenue shortfalls we have experienced since May.”

In his report, Raha warned the recovery is fragile. Unemployment has yet to peak, and regional banks continue to be hurt by loans they made for commercial real estate developments, he said.

“Except to economists, it won’t feel like a recovery until the middle of 2010,” Raha said. “Businesses don’t start hiring until they’re sure the recovery is here to stay.”

Still, Raha’s assessment of the economy was more upbeat than three months earlier. He said he expected the state’s unemployment rate to peak at 9.8 percent next spring. Previously, he predicted the jobless rate would reach 10.5 percent.

Rebounding economies in Asia and Europe will help Washington, which depends heavily on foreign trade, to come out of the recession faster than the country as a whole, he said.

Raha estimated the federal Cash for Clunkers program generated an additional $7 million in taxes from new car sales. Meanwhile, only a minority of the federal stimulus plan passed by Congress Last winter has been spent, he said.

“We expect the maximum impact of the federal stimulus to kick in around the middle of 2010 or the third quarter of 2010,” Raha said.

While federal policies have increased the amount of money flowing through the state’s economy, the recovery could falter if consumer confidence remains low, he said.

“Private spending is what drives the economy. Government spending can’t drive it forever, so if private spending does not rise, then there is the risk of a double-dip” recession, Raha said.

Although the state’s finances appear to be steadying, Orcutt said he didn’t find much relief in Raha’s report.

“It looks like we’ve finally hit bottom, but that’s still a difficult place to be, especially for those who are unernployed and looking for work.,” he said.