Structural imbalances that had become a handbrake on the economy had been laid bare in gross domestic product data for the March quarter, he said.
Statistics New Zealand figures showed the economy posted its fifth successive contraction in March, falling 1% in the quarter and 2.7% in the year ended March.
The latest quarterly decline was driven mainly by manufacturing activity, down 7.2%.
The contraction was in line with Reserve Bank forecasts but economists are now warning of worse to come, along with the prospect of many job lay-offs.
Fletcher Building yesterday confirmed the closure of its particle board plant in Kumeu, northwest of Auckland and 41 people are expected to lose their jobs.
Another 60,000 New Zealand workers are forecast to lose their jobs within the next 12 months.
Mr English said the Government was determined to close the income gap that had opened up between New Zealand and its trading partners, particularly Australia.
"For that to happen, we must address the serious structural imbalances that have become evident over the past decade when New Zealand's growth was fuelled by borrowing and consumption."
In the past five years, the tradeable sector of the economy - including exporting and manufacturing - had been in recession, while the non-tradeable sector had grown strongly. That had contributed to a deteriorating current account deficit and had stymied New Zealand's economic performance, he said.
"This situation is clearly unsustainable, particularly as we are facing the considerable added pressure of the worst global recession in more than 60 years," Mr English said.
The Government would be pressing ahead with regulatory reforms and a multibillion-dollar investment in productive infrastructure and with providing better, smarter public services, he said.
Council of Trade Unions economist Bill Rosenberg said the alarming fall in business investment indicated there was worse to come, with implications for both jobs and other sectors that might benefit from investment and business growth.
"Even the service sector is now experiencing a contraction, having held up against the trend in previous quarters."
The CTU wanted more focus on job creation, measures to support job retention and scaled-up assistance, including training for the unemployed, he said.
ASB economist Jane Turner said the latest GDP results made her think that the recession was spreading through more sectors of the economy more aggressively than expected.
The signs of recovery in the housing market were conspicuously absent in other sectors.
"At some stage down the track, the Reserve Bank may want to deliver further monetary stimulus - or, more correctly, try to mitigate the lift in the dollar and long-term interest rates."
At a glance:
• New Zealand in recession for at least five quarters
• Recession more aggressive and wider than previously thought
• Reserve Bank urged to take action to keep dollar low
• Calls for help with job creation and retention
