The Treasury expects the unemployment rate to rise to nearly 6% and the Government's books to go further into the red.
And the Treasury is warning that things are likely to get worse.
The outgoing Finance Minister, Michael Cullen, has released the update he received from Treasury last Friday, the day before the general election.
The Treasury is predicting that growth will be slower than it forecast in its pre-election fiscal and economic update.
In its pre-election and fiscal update in October, the Treasury forecast budget deficits for the next 10 years. It predicted a cash deficit this year of nearly $6 billion, rising to $7.3 billion in the financial year to June 2013.
However, that cash deficit is now projected to be $9 billion, an increase of almost $2 billion on the Treasury forecast.
Under these forecasts, public debt will rise as the Government borrows more to cover day-to-day running costs, including paying for tax cuts planned for April 2009.
The Treasury put out a statement on Thursday, saying the forecasts in the update released by Dr Cullen are indicative only.
The National Party's leader, John Key, says the forecast will not prompt any changes to National's policies. Mr Key has refused to disclose the numbers he was given at a private briefing by the Treasury on Wednesday.
Finance Minister criticised
The National Party accused Dr Cullen of unprofessional behaviour for releasing the Treasury update.
Dr Cullen says he released the report after Mr Key said the Treasury had backed National's tax cuts and also claimed there was nothing to worry about.
Dr Cullen says the information needed to be released publicly.
National's way forward
The National-led Government will release its half-year fiscal and economic update in December and outline its spending plans in its Budget policy statement.
Mr Key says he heard nothing during the Treasury briefing that would convince him that National needed to change any of the economic plan it spelled out before the election.
The party will stick to its commitment of limiting additional spending to $1.75 billion each financial year.