Japan’s Cabinet Office said that the world's second largest economy shrank by 0.1 per cent in the last three months of 2004, dragged lower by weak levels of export and consumer spending.

The office also revised its estimate of Japan’s economic performance in the July-to-September period from growth of 0.1 per cent to contraction of 0.3 per cent.

With the economy also contracting, by 0.2 per cent, in the April-to-June period, the report showed Japan as suffering three quarters of economic contraction. Typically, economists view two successive quarters of decline as sufficient to mark recession.

However, officials declined to concur that the Japanese economy had fallen into its fourth slump in a decade.

"Basically, the economic recovery is continuing. It’s just that consolidation is being protracted," Junichiro Koizumi, Japan’s Prime Minister, said.

Heizo Takenaka, the Economy Minister, said: "The economy has some soft patches, but if you look at the bigger picture it is in a recovery stage.

"The current conditions are mostly in line with our view of the economy - it is largely levelling off in a slightly softer tone."

He added that more evidence was needed to confirm recession "because we cannot make a call just by looking at the GDP figures. We make a more comprehensive judgment."

The denials received some support from analysts. Richard Jerram, the chief economist at Macquarie Securities, told AFP: "It’s a stretch to say there has been a recession."

A Government survey had revealed "extraordinary growth" in corporate profits over the summer.

"If profits are that good, it’s impossible for the economy to be in recession," Mr Jerram said.

Masaaki Kanno, the chief Japan economist for JP Morgan Securities in Tokyo, told AP: "On the surface, three consecutive quarters of contraction technically may look like a recession, but economists must look at the basic implications for the Japanese economy."

However, Mamoru Yamazaki, the Barclays Capital economist, said that the economy was "in a shallow recession".

At Societe Generale Asset Management, Akio Yoshio, the chief economist, foresaw that the economy would "hit bottom" in the April-to-June quarter this year before staging a recovery.

A further decline in Japan's performance would raise doubts over stability of global growth, with data yesterday showing Germany, the world's third largest economy, shrinking by 0.2 per cent in the last three months of 2004.

Italy's economy contracted by 0.3 per cent and Holland's by 0.1 per cent, although strong performances by France and Spain helped the eurozone overall achieve 0.2 per cent growth.

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