TOKYO - JAPAN'S government said on Monday for the first time in nearly seven years that the economy is worsening as it downgraded its assessment for the third straight month.

'The economy is worsening' with industrial production and corporate profits sharply deteriorating, the Cabinet Office said in the December report.

It is the first time the government has used the term 'worsening' since February 2002 when Japan was affected by the collapse of the IT bubble.

'As for short-term prospects, while the economy is likely to continue worsening for the time being, there is fear that the employment situation is worsening further due to the rapid reduction of production,' it said.

It added there are risks that violent swings in stock and currency markets would further pressure the economy.

It was stronger language than in November, when the Cabinet Office said the economy 'has weakened further'.

A Cabinet Office official said the downgrading in December was due to deterioration of many economic sectors 'at an exceptionally high pace'.

'The tempo of (the) economic downturn is getting substantially faster, and what's worse, there are many negative factors that can make a recession deeper and longer,' said the official.

The Japanese government has launched giant economic packages this year but many economists remain sceptical about their effectiveness.

Last week, the Cabinet Office forecast zero growth for the year to March 2010 even if the efforts are successful.