The earthquake and tsunami caused widespread damage to Japan's north-east coastThe Japanese government has downgraded its assessment of the economy in the wake of the devastation caused by last month's earthquake and tsunami.
It said key areas of the economy would suffer, including industrial production and exports.
The decision marks the first time in six months that the government has downgraded its assessment.
On Monday, the International Monetary Fund (IMF) cut its forecast for Japanese growth.
"The economy is showing weakness recently due to the influence of the Great East Japan earthquake," the Japanese government said in its monthly economic report.
"It remains in a severe condition."
Downward directionThe disaster affected many companies which had operations in the north-east of Japan, destroying factories and blocking supply chains.
Electricity shortages caused by the crisis at the Fukushima Daiichi nuclear plant are likely to continue into the summer.
The power shortfall has resulted in rolling blackouts, affecting production at some of the country's biggest companies.
The government has warned of the negative impact of these shortages on exports, saying shipments may decline as manufacturers battle to get their production lines back to full capacity.
The Japanese economy had already been struggling to come out of the global financial crisis before the earthquake and tsunami hit on 11 March.
Analysts say the twin natural disasters have set back that recovery process even further.
"The condition of the economy is no longer flat or at a standstill, but rather the direction is downward," said Shigeru Sugihara, director of macroeconomic analysts at the cabinet office.
Japan estimates rebuilding will cost up to 25 trillion yen ($295bn).
Nuclear crisisThe true human cost of the disaster is still unclear one month on. The official death toll is 13,333, with more than 15,000 people still unaccounted for. More than 150,000 people have been made homeless.
Adding to the economic impact is a national mood of self-restraint. In sympathy with the victims people in other parts of Japan have been cutting back on consumption.
A month after the quake, engineers are still trying to stop Fukushima's reactors from overheatingPrime Minister Naoto Kan has urged a return to normality for those living in unaffected areas.
"Let's live normally without falling into excessive self-restraint. We must build a new future," he said in a televised address late on Tuesday.
Meanwhile, workers at the crippled Fukushima Daiichi nuclear plant are battling to restore crucial cooling systems knocked out by the tsunami, and avert a large-scale release of radiation.
Overnight, engineers siphoned off 250 tonnes of highly radioactive run-off water to on-site storage facilities.
On Tuesday, Japan's Nuclear and Industrial Safety Agency raised the severity of the crisis at the plant to the highest level, seven.
The decision reflected the total release of radiation at the facility, which is ongoing, rather than a sudden deterioration.
Level seven previously only applied to the 1986 Chernobyl disaster in Ukraine, where 10 times as much radiation was emitted.
Mr Kan said that "step by step, the reactors in the Fukushima Daiichi power plant are moving toward stability".
There have been no fatalities resulting from the leaks at Fukushima, and risks to human health are thought to be low.
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