The economy is projected to grow 1.6 percent in real terms in fiscal 2005 on the back of steady personal spending and growth in overseas economies, the government said Monday.

The government's revised GDP forecast for the current fiscal year ending March 31 is a real 2.1 percent, the Cabinet Office said.

The new projection for gross domestic product will serve as the government's policy target for fiscal 2005, the Cabinet Office said. The number is a little bit higher than the average of 1.3 percent forecast by 27 private-sector think tanks, but well below the Bank of Japan's projection of 2.5 percent, the Cabinet Office said.

On a nominal basis, which does not include price changes, the economy is forecast to expand 1.3 percent in fiscal 2005, compared with 0.8 percent forecast for fiscal 2004, it said.

Economic and fiscal policy minister Heizo Takenaka told a news conference that steady progress is being made toward the government's target of attaining a nominal 2 percent growth in fiscal 2006.

The GDP deflator, a major barometer of price changes, is expected to edge down 0.3 percent, compared with the 1.3 percent fall projected for the current fiscal year.

The government said that progress would be made in fighting deflation in fiscal 2005, because it is projecting that the nationwide consumer price index, excluding perishables, will inch up 0.1 percent compared with the previous year, reflecting a continued rise in wholesale prices.

If the CPI does rise, it will be the first time since fiscal 1998, when it edged up 0.2 percent. Meanwhile, the government predicted that wholesale prices would rise 0.4 percent in fiscal 2005, compared with the 1.4 percent projected for fiscal 2004.

Personal spending, which accounts for some 55 percent of Japan's GDP, will rise 0.9 percent in real terms in fiscal 2005.