The nation's economy shrank a real 1.4 percent during the October-December term compared with the previous quarter, logging negative growth for the second consecutive period, the Economic Planning Agency said Monday.

Private consumption fell 1.6 percent from the July-September quarter.

The dismal showing, which translates into an annualized rate of negative 5.5 percent in gross domestic product, was largely due to a fall in private consumption and public works spending.

Public works spending, which underpinned the strong GDP showing during the first half of 1999, wore off during the latest quarter, logging a 5.4 percent quarter-to-quarter drop.

But the results did not faze EPA chief Taichi Sakaiya, who called the second-consecutive decline a "temporary" phenomenon.

"I don't think the economy is in a recession," Sakaiya told a news conference after the announcement.

Two quarters of negative growth is the technical definition of a recession.

"Given the positive signs that have emerged (at the beginning of this year), we feel that the economy is moving in a better direction," Sakaiya added.

The Tokyo Stock Exchange fell 2.8 percent on Monday, with the benchmark Nikkei average of 225 blue chips down 560.47 points to close at 19,189.93. However, traders said the decline was because of falling high-technology stocks, not economic concerns.

Monday's report also noted that private sector investment rode the tails of information technology-related firms and grew 4.6 percent in the quarter. Sakaiya said the numbers were stronger than expected and stressed that capital expenditures are a key to any self-sustained recovery.

"The figure shows that Japanese corporations are more positive about introducing new technologies than we had imagined," he said.

But it remains uncertain whether the government can attain its growth forecast of 0.6 percent for fiscal 1999, which ends March 31.

To reach the goal, GDP will have to improve by 2 percent, or an annualized 8.2 percent, during the January-March quarter.

Sakaiya ruled out the possibility of the government revising its growth forecast downward, saying the economy is likely to achieve positive growth, if not hitting the 0.6 percent mark exactly right.

Chief Cabinet Secretary Mikio Aoki told a separate press conference that the government believes the economy is on a recovery path despite the technical recession.

"I think the October-December GDP figure was affected by some temporary factors," Aoki said. "Since January, we have observed a brighter economic trend, and we see that Japan's economy will keep going on the path of recovery."

Aoki said the government expects to be able to honor its pledge and propel the economy to real 0.6 percent growth for fiscal 1999.

For calendar 1999, GDP grew 0.3 percent, retreating from negative growth of 2.5 percent the previous year.

Total October-December GDP came to an annualized 475.82 trillion yen in real terms, compared with 482.61 trillion yen in July-September.

The EPA chief said the agency will revise the tone of its economic assessment upward in the next monthly report, due out Friday.

But he remained noncommittal on how optimistic the tone will be, saying the wording is still under consideration.

At a news conference after the release of the October-December GDP data, EPA Vice Minister Takashi Nakanomyo also said the agency considers the economy to be brighter now than it was last month.

From October through February, the agency repeated that the economy had "improved moderately."

Sources close to the EPA said the agency will state in its March report that the economy is "recovering."

The recovery refers to growth of production supported by fiscal and monetary steps as well as by recovery in the Asian economy, which will lead to rises in capital spending and household income, they said.

The GDP announcement comes only a few days after many private economists revised their projections upward, following a stronger-than-expected showing on a corporate survey announced by the Finance Ministry last week.

Most economists had predicted the GDP would shrink in the range of 0.4 to 1.1 percent.