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The government on Monday cut its economic forecast for fiscal 2009 to a postwar-worst contraction of 3.3 percent from the earlier predicted zero growth as the deepening global slump continues to undermine the economy, and Finance Minister Kaoru Yosano warned that a further downgrade is possible.

The Cabinet Office said it downgraded the estimate for the current fiscal year, which began earlier this month, as the economy “has been deteriorating at an unprecedented speed,” particularly since the latter half of fiscal 2008.

It’s rare for the government to revise its forecast at such an early stage of the fiscal year. Usually, the Cabinet Office gives the economic forecast in terms of gross domestic product in December for the upcoming fiscal year so it can be used as the base for the year’s state budget, with revisions often coming in the summer or fall to reflect the latest economic situations.

“In addition to sharp declines in exports and production, private consumption has been weakening,” the office said in its latest economic estimation. The fiscal 2009 economy “will have to get started at a low in negative territory that has never been seen before.”

The Bank of Japan is also widely expected to revise downward its real GDP forecast for fiscal 2009 in its economic outlook report to be adopted at a policy meeting Thursday.

For fiscal 2008, which ended March 31, the Cabinet Office said the economy is likely to have shrunk 3.1 percent, a bigger contraction than the 0.8 percent fall it projected in December.

Yosano, noting the risk of further downgrading the economic projection due to worries over overseas situations such as U.S. and European financial institutions’ unresolved bad-loan issues, told reporters: “Several giant U.S. companies are in critical situations, and depending on how they are treated, not only Japan but also the global economy could be affected.”

For fiscal 2009 through next March, the government expects exports to plunge a record 27.6 percent from the previous year, instead of the 3.2 percent drop it projected in December.

It also revised downward its forecast for business investment to a largest-ever 14.1 percent decline from an earlier forecast 4.2 percent drop.

Despite the second consecutive year of expected economic contraction through fiscal 2009, the office said the government’s economic stimulus package, including a cash-handout program and tax breaks on eco-friendly cars, will help prevent the nation from falling into a negative spiral.

Private consumption is projected to recover to 0.3 percent growth in fiscal 2009 after falling 0.3 percent in fiscal 2008, it said.

On prices, the office lowered its outlook for the consumer price index for fiscal 2009 from the previously projected 0.4 percent drop to a record 1.3 percent fall, due to slides in oil prices and weakening demand amid the recession. The index is projected to have risen 1.1 percent in fiscal 2008.

The office also expects the wholesale price index to drop 5.5 percent in fiscal 2009 after rising 3.3 percent in fiscal 2008, raising the deflation alarm.

The government’s economic stimulus measures are likely to generate about 200,000 more jobs in fiscal 2009, it said, but added that the jobless rate would rise to 5.2 percent in the period, up from 4.1 percent in fiscal 2008.

The office also lowered its global GDP forecast, excluding Japan, from the earlier projected 1.2 percent growth to a 1.4 percent shrinkage.

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