The government is likely to set its official growth forecast for fiscal 2002 at minus 0.3 percent in the wake of news that the economy contracted a real 0.5 percent in the July-September quarter, government sources said Friday.

Based on this latest figure, the Cabinet Office will consult relevant ministries before deciding on a formal growth target for real gross domestic product in fiscal 2002, the sources said.

The entities in question hope to reach an agreement before the Finance Ministry compiles its draft state budget for the coming fiscal year around Dec. 20, they said.

Should they agree on a forecast of minus 0.3 percent, it would mark the first time that the government has released a minus figure in its initial GDP forecast for the ensuing year.

In late November, Heizo Takenaka, minister of economic and fiscal policy, said the benefits of a planned second supplementary budget of 2.5 trillion yen would be insufficient to prevent the economy from shrinking again in fiscal 2002, following an expected contraction in fiscal 2001.

Earlier on Friday, the Cabinet Office said the domestic economy shrank a real 0.5 percent in the July-September period from the previous quarter, marking a second straight quarter of contraction.

Although some economists believe the U.S. economy will recover some time in the middle of next year, this projected recovery is unlikely to affect the Japanese economy until early 2003.