Brian Lenihan said the economy would shrink by 7.5% this year and 1.25% next year.
The 2010 figure is slightly better than that given in the pre-Budget outlook last month.
Mr Lenihan told the Dáil falling prices would cushion the effects of lower pay and social welfare payments.
He told the Dáil that his Budget would include measures of €4 billion to cut the Budget deficit, but the adjustment needed next year would be lower at €3 billion.
Mr Lenihan said consumers would only spend and business owners invest if they believed the deficit was being tackled now.
He also warned that delaying action could lead to international lenders' losing faith in Ireland's ability to restore order to public finances.
Deficit 'to stabilise in 2010' - Government
The Government is forecasting a general government deficit of 11.7% of GDP for this year, and says this will stabilise at 11.6% of GDP in 2010. The Exchequer deficit is expected to be €18.8 billion next year, down from €21.9 billion this year.
The total tax take next year is expected to fall another 4.7% to €31 billion.
