"I tell you very openly: We cannot expect the economic downturn to be over quickly," she said according to a manuscript released by her office. "Some things will be more difficult next year before they improve."
She said Europe's biggest economy would continue to fight for new international rules for financial markets "so that the confluence of excess and irresponsibility can be prevented in time in future."
2010 will be the crucial year that decides how Germany emerges from the crisis, and whether it lays the groundwork to avert a similar debacle, she said.
Merkel, 55, said her centre-right government would work with business leaders and banks to ensure companies, particularly small and medium-sized firms, can get past a nagging credit crunch.
She said that although the economic slowdown had created severe problems for the world's developed nations, it must not prevent them from confronting climate change after the failure of this month's Copenhagen summit
"The global crisis must not serve as an excuse to brush aside other challenges facing humanity," Merkel said.
"Industry and environmental protection are not in opposition, they rely on each other, now more than ever. We must not let ourselves be put off by setbacks such as the climate conference in Copenhagen."
She pledged that Germany would continue to work toward sustainability "in the economy, in the financial industry, in social and integration policy and, last but not least, by investing more in education".
The government expects the German economy to grow 1.2 percent in 2010 after slumping around five percent this year in the worst decline since World War II.
But the 2010 budget foresees a record €85.8 billion ($123.1 billion) in new debt. Despite this, Berlin passed a disputed €8.5-billion tax relief package this month as a stimulus measure despite serious reservations about its impact on the country's tattered public finances.