TOKYO: Two thirds of big Japanese companies expect the country's economy to recover by the middle of next year, according to a survey by Kyodo News released Sunday.

Of 108 firms polled, 71 expected a recovery by the middle of 2010. Twelve of them said the economy was already recovering, 15 expected the turn to come in the second half of 2009 and the 44 others in the first half of 2010.

Kyodo attributed the optimistic outlook to improved business results sparked by cost-cutting, rebounds in production and inventory adjustments.

The survey followed a report by the Bank of Japan in mid-July that said the economy should start recovering from the second half of this year.

However, annual gross domestic product was expected to shrink 3.4 percent in the financial year to March 2010.

The bank also forecast GDP growth of 1.0 percent for the next financial year.

In the Kyodo survey, conducted late last month, 20 firms said the world's second biggest economy was "recovering slowly" while 51 firms said it was "leveling off despite signs of recovery."

A similar survey conducted between late November and mid-December 2008 showed 98 percent of respondents thought the economy was deteriorating.

However, the latest poll showed big businesses had persistent concerns.

Eighty-eight firms cited the state of the US and European economies while 64 firms noted sluggish personal consumption and 29 the deteriorating employment situation.

Japan entered recession in the second quarter of 2008 as its heavy dependence on overseas demand left it highly exposed to the global downturn.

The economy shrank at an annualised pace of 14.2 percent in the first quarter of 2009, the worst performance on record, but recent government data have indicated that exports and industrial production have begun to rebound.