The economy is "deteriorating," the government reiterated Wednesday, acknowledging the country's longest postwar expansion has probably ended.

The coincident index, which tracks factory and retail sales, rose to 103.3 in July, the Cabinet Office said in a report released in Tokyo on the day, a gain that was too small to change its view that "the chance of a recession is high."

The median estimate of 21 economists surveyed by Bloomberg News was for the index to climb to 102.5.

Economists said revised figures will show on Friday the world's second-largest economy probably shrank last quarter by the largest margin since 2001, when Japan suffered its last recession.

The slump is likely to continue this year as weakening demand at home and abroad erodes profits, making it hard for companies to raise spending on equipment and hiring.

The three-month moving-average of the index, which the government uses to make its monthly assessment, rose to 103.1 in July from 102.7 in June, Wednesday's report showed.

Companies cut investment in the three months to June 30 for a fifth quarter, a Finance Ministry report showed last week, prompting economists to say the spending component in gross domestic product will probably be revised lower.

The revised GDP report will show the economy shrank an annualized 3 percent last quarter, from an earlier estimate of 2.4 percent, according to a Bloomberg News survey.

The spillover from the U.S. slowdown is starting to exert a drag on Europe and Asia, markets where Japanese companies make about three-quarters of their overseas sales.