Gross domestic product surged upward 1.9% in the first calendar quarter of 1999, a surprisingly strong showing for the world's second-largest economy, which had been mired in deep recession. However, talk of a significant recovery is premature. Much of the growth was spurred by huge government spending for public works projects and government loans to small- and medium-sized businesses. "Basically I am positive on the Japanese economy," says Kazuhiko Ogata, senior economist at ABN Amro Securities Japan Ltd. in Tokyo. For the time being, Ogata is still predicting Japan's economy will contract 0.1% for the full year. But that could change, he says, Japan's economy could even show positive growth for 1999 if new government plans to spur the economy are effective, says Ogata. One plan aims to improve corporate productivity by offering tax credits to companies reducing excess capacity and possibly further spending measures to boost employment and public works. Capital investment by Japanese firms hit a 12-year low in April, falling 13.8%, partly because large investments in cellular phone facilities and equipment had peaked. And Japan's Economic Planning Agency forecasts that further declines in machinery orders are likely to continue throughout the year.