The government is putting the final touches on its economic growth projection for fiscal 2001, with the Economic Planning Agency eyeing a target of around 1.8 percent, which would mark a third straight year of growth, government sources said.

The projection is based on the nation's gross domestic product under a new U.N.-recommended calculation method known as SNA93, which is the standard used in most industrial nations.

The EPA forecast 1.5 percent growth under the old calculation for the current fiscal year, which ends March 31. In fiscal 1999, it targeted growth of 0.6 percent, but the actual GDP was 0.5 percent.

The 2001 projection -- which is subject to consultations between the EPA, Finance Ministry and Ministry of International Trade and Industry -- will serve as a growth target for the government.

The government will formally endorse its growth projection for fiscal 2001 at a meeting Tuesday of Cabinet ministers involved in economic matters.

Finance Minister Kiichi Miyazawa said Tuesday that the economy could grow by about 2 percent in the next fiscal year.

The EPA reckons the economy will remain on a recovery path in fiscal 2001, with corporate spending on plant and equipment leading the way, followed by a pickup in personal spending.

But the EPA sees difficulty in attaining growth of 2 percent or more for fiscal 2001 in view of decreased government pump-priming, uncertainties over the U.S. economy -- Japan's main export market -- and signs that domestic business sentiment is on the wane.

In addition, personal spending has given few indications that it might pick up soon.

Good news, bad news

The economy remains in a gradual improvement trend but some weaknesses are hampering a full-fledged recovery, the Economic Planning Agency said Friday.

EPA said in its December report that overall economic activities "continue to rise modestly" as the "autonomous nature of the recovery has become increasingly evident" in the corporate sector.

But it said export volume has flattened because of slackening demand in other parts of Asia, and the current account surplus is gradually narrowing on the back of high crude oil prices.

The EPA also said housing investment suffered a slight setback as starts of owner-occupied single homes, which had been up over the past few months, turned downward.

It added that corporate sentiment is apparently turning cautious, reflecting dwindling equity prices, although its recovery trend remains unchanged.

The EPA's assessment of the business mood is identical to that of the Bank of Japan, which said in its "tankan" survey released Wednesday that major manufacturers' confidence showed no improvement since the previous survey in September.

"We maintained our cautious view" on the overall economy for the second month in a row, an agency official told reporters.

In the December report, the EPA said personal spending, which accounts for about 60 percent of the economy, remains "broadly flat," though household income has picked up a little.

"Some hopeful signs can be observed, but they are not strong enough to revise our assessment of private consumption upward," the official said.

"Income hasn't trickled down to personal spending yet. If income grows more clearly, it will lead to a more robust recovery in personal spending," he added.

As for corporate investment on plants and equipment, which has led the recent recovery phase, the agency said manufacturers' capital spending is increasing.

But it also pointed out that the pace of business investment growth is slower across the board than it was in several prior months.