The economy could deteriorate further than predicted by the gloomy official forecast made last month.
Treasury briefing notes to the Prime Minister show concerns about a worsening global economy.
John Key, speaking after a meeting with senior ministers on Thursday, said Treasury forecasts were now closer to the "downside scenario" painted last month.
The notes show that Treasury believes there is a risk the situation will get even worse.
It says there is deep concern at the rate with which world trade has fallen away, with unprecedented drops in commodity prices.
Treasury says the risks for 2009 are falling dairy and other commodity prices, households stopping spending, and banks freezing lending.
On the plus side, it says international financial markets are showing signs of stabilising, and there is no evidence yet of a domestic credit crunch.
Mr Key said on Thursday he will announce on 4 February which infrastructure projects will be brought forward in an effort to combat the economic downturn.
CTU calls on Govt to act sooner
The Council of Trade Unions (CTU) says New Zealand cannot afford to wait for the plans to be announced to and action is needed now.
However, Business New Zealand says rushing might do more harm than good in the long run.
CTU president Helen Kelly says a 4 February announcement will be too late. She says some projects, such as school buildings or housing infrastructure, should be announced now.
She says that would send a strong message to businesses thinking about laying off staff.
Ms Kelly says Government announcements would also boost industries associated with construction, such as manufacturing and wood processing.
But Business New Zealand says it is prepared to wait.
Chief executive Phil O'Reilly says it is important to develop a sound plan and not to panic and his organisation would be aghast if the Government was rushing a response that might do more harm than good.
