The Japanese government forecast the economy to contract more than it initially estimated in fiscal 2009 to show the biggest decline since the government started to compile growth in 1955.

The Cabinet Office said the economy is expected to contract 3.3% this fiscal year on plunging exports. Earlier, the government had projected a nil growth for the fiscal year 2009. The new projection is worse than the 1.5% contraction seen in fiscal 1998. The government said the economy is deteriorating at an unprecedented speed.

Finance Minister, Kaoru Yosano said exports have plunged much harder than our expectation. I think the Japanese economy's downside risks may come from overseas, he said.

The government said the economy would shrink 5.2% in this fiscal without the stimulus measures announced by Prime Minister Taro Aso.

Today, the government submitted supplementary budget to Parliament that included an extra spending of 14.7 trillion yen fresh fiscal stimulus measures announced by Aso.

To finance the extra budget, the government intends to sell 10.8 trillion yen in new bonds taking the total bond sales to 44.1 trillion yen in this fiscal.

In the fiscal year 2008, the economy would have declined 3.1%, if the January to March GDP estimate is correct. Economists at Cabinet Office said the economy might have shrunk around 14% during January to March period.

Exports are estimated to decline 27.6% annually in this fiscal, while the fall in capital spending is seen at record 14.1%. The unemployment rate is forecast to rise to 5.2%. All the numbers are worse than their previous estimate. Also, consumer prices are predicted to fall 1.3%. However, private consumption is projected to rise 0.3% this year.

Last week, the Washington-based International Monetary Fund had said the second largest economy would possibly shrink 6.2% in 2009, the largest decline among industrialized nations.

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