According to the Sage of Omaha, the recent market turmoil and wave of bank bailouts has left the American financial system "flat on the floor".
The seizing-up of the credit markets has left many firms vulnerable to being either taken over or going bankrupt.
Mr Buffett, 77, has made high-profile investments in Goldman Sachs and General Electric recently, which many have interpreted as a powerful vote of confidence in the US economy.
However, he has told shareholders that his investment strategy is to be "greedy when others are fearful" - and has negotiated attractive terms from both deals, including a guaranteed ten per cent dividend.
Speaking to Charlie Rose on PBS, Mr Buffett commented: "In my adult lifetime I don't think I've ever seen people as fearful, economically, as they are now.
"The economy is going to be getting worse for a while."
Mr Buffett's interview will be broadcast in the US tonight.