Speaking after statistics confirmed New Zealand had been in recession for the first half of the year, Dr Cullen said the country was probably experiencing a third quarter of economic shrinkage as well.
He was confident there would be some growth in the last quarter of the year or early 2009.
Though this was subject to "one very, very important caveat" -- if the US financial crisis was not sorted out then there was a serious risk an international credit crisis would create a major international economic slowdown, he said.
"That is something where New Zealand is a cork on the wave in the ocean," Dr Cullen said.
American political leaders are trying to get agreement on a trillion dollar rescue package that would result in the Government buying dodgy mortgages off banks and finance companies.
Dr Cullen was very hopeful this would happen in a matter of days.
Even if this did happen there were tight times ahead for whoever formed the next government.
Dr Cullen said the cash deficits for the next four years were "significantly worse than forecast at budget time". The forecast at budget was for around $3.5 billion a year.
Treasury will open the Government's books on October 6 as well as its latest fiscal and economic forecasts in the Pre-election Economic and Fiscal Update (Prefu) Dr Cullen said the "enormously successful" introduction of KiwiSaver had "fiscal consequences" which would become apparent at Prefu.
About two-thirds of the deterioration in position was based on the economy.
"The slow down in the New Zealand economy has been deeper than forecast at budget time.
"The impact of the international credit crunch and some errors by Treasury in terms of forecasting means the deficits that we are forecasting for the next four years will be very much larger than they were at budget time."
The other third in deterioration would be from more spending due to KiwiSaver and the uptake of early childhood education subsidies.
No matter who won the election they would be forced into fiscal restraint without large increases in spending or reductions in virtue, he said.
National leader John Key said Dr Cullen had shut up the shop and was blaming the world economy.
"At times like this, people look to the government for a sense of direction. People can get through a recession if they see the path ahead to better incomes," Mr Key said.
"The reality is that fiscal initiatives at this point must be targeted at strengthening the economy for the future. Only a strong economy can provide continued improvements in public services."
Dr Cullen said tax cuts taking effect from next week would help feed spending and the pressure from high oil prices was down a little. Dr Cullen described the debt track as "not a pretty picture" and indicated it would exceed targets.
Asked if there was any room for big election promises, Dr Cullen said there was room for a "modest total in terms of spending promises provided there is restraint across the board in other areas of spending".
Figures published today by Statistics New Zealand show gross domestic product (GDP) shrank 0.2 percent in the June quarter.
That follows a decline of 0.3 percent in the March quarter, so the country now meets the common definition of recession -- two consecutive quarters of economic contraction.
The last time economic activity declined for consecutive quarters was the three quarters ending March 1998.
Annual growth in GDP was 2.6 percent for the June year.
