A man crosses a street in front of the Bank of Japan headquarters in Tokyo Friday, Dec. 19, 2008. The central bank is weighing worries about a global downturn as its policy board ends a two-day meeting to decide on a benchmark interest rate on Friday.(AP Photo)

TOKYO – The Japanese economy will shrink this fiscal year and will manage only flat growth the following year, the government said Friday, underlining looming fears about a global recession.

The Cabinet Office lowered its forecast for the nation's gross domestic product — the value of goods and services — for the fiscal year through March 2009 to a 0.8 percent contraction. In July, it had expected 1.3 percent growth. It expects growth to stay flat during the fiscal year ending March 2010.

The gloomy outlook shows that Japan's export-dependent economy, already driven into recession by fallout from the U.S. financial crisis and ensuing global slump, is in for more pain. Major corporations like Toyota Motor Corp. and Sony Corp. are slashing their earnings estimates and cutting work forces.

Nagayuki Yamagishi, strategist at Mitsubishi UFJ Securities Co. in Tokyo, said the government's projection was too optimistic.

"Economies around the world are contracting and so Japan's economy is clearly going to contract," he said.

Earlier this month, the government said Japan fell deeper into recession in the third quarter than first thought, shrinking at an annual pace of 1.8 percent.

In 2001, the Cabinet Office projected zero growth for the fiscal year ending March 2003. But the economy grew 1.1 percent that fiscal year, according to the government.

The government said exports will continue to slow and corporate investment will decline in coming months.

Such negatives will only be somewhat offset by a moderate recovery in consumer spending and housing investment, helped by a government stimulus package announced earlier this month, the Cabinet Office said.

Last week, Japan announced a 23 trillion yen ($258 billion) spending package to jump start growth, including measures to encourage employment and dole out cash payments to people.

Also Friday, the government said the jobless rate will worsen to 4.7 percent in the fiscal year ending March 2010, from 4.2 percent projected for the fiscal year ending March 2009. It had previously expected the unemployment rate to stand at 3.8 percent for the current fiscal year.

(Agencies)