KEY POINTS:
Consumer confidence has plummeted to its lowest in 10 years.
The Westpac McDermott Miller quarterly survey recorded its steepest decline in eight years in March.
The index dropped from 110 in December to 96.5.
Any level below 100 indicates more pessimists than optimists.
The figure dropped from 102.9
in March 1998 to 94.2 in June of that year. It has been above 100 for eight years.
"My jaw dropped when I saw the results," said Westpac economist Donna Purdue.
"But you don't have to look very far to find reasons for the dramatic fall - rising food and petrol prices, high mortgage interest rates, drought, falling house prices and turmoil in global financial markets."
The biggest drop in the survey came when respondents were asked if they felt better or worse off financially than they were a year ago.
A net 19 per cent said worse off. Three months ago, a net 2 per cent felt better off than a year earlier.
It is the sharpest fall in confidence by that measure in the 20 years the survey has been going.
And only a net 2 per cent expect to be better off in a year - the fewest since 1992.
The last time confidence fell so sharply was in the June 2000 quarter, which was also the last time house price inflation turned negative, Ms Purdue said.
"But the extent of the decline is also odd in that it comes at a time when the economy is experiencing relatively good conditions.
"The unemployment rate is at a 21-year low, our terms of trade are at a 33-year high and our fiscal balance sheet is exceptionally strong.
"In the past pessimistic readings on confidence have usually occurred after confirmation that economic growth had turned down."
When consumer confidence fell to these levels in 1998 and in the early 1990s we had dire economic times.
But we did not have the low unemployment, strong terms of trade or strong fiscal position that we had now.
"We are coming from a much better starting point."
At current levels, consumer confidence is consistent with the much slower pace of growth in consumer spending the Reserve Bank deemed necessary to relieve inflationary pressures, Ms Purdue said.
But anyone looking for an early cut in interest rates was likely to be disappointed.
The Reserve Bank is forecasting that private consumption, which makes up more than 60 per cent of economic activity, will grow by a scant 0.8 per cent over the coming year and remain weak for two years after that.
Its forecasts for consumption growth over the next three years average 1.2 per cent, down from 4.3 per cent over the past seven years.
But even with those forecasts, the bank said last month it expected to keep the official cash rate at 8.25 per cent "for a significant time yet".
"If it does, in this environment it does feel like we are in for quite a long period of much lower consumer spending growth," Ms Purdue said.
"It is obviously going to depend on how the global situation plays out and how much credit conditions tighten over the coming year."
The decline in confidence was steepest in the big cities, among women and among people in their 20s.
There was also a contrast between public and private sectors.
McDermott Miller managing director Richard Miller said confidence among private sector consumers had fallen 14.4 percentage points compared to public servants' 11.6.
And fewer public servants felt worse off financially than a year ago - a net 17 per cent against a net 22 per cent of private sector consumers.
"Far fewer consumers this quarter feel it is a good time to buy a big-ticket item," Mr Miller said.
"Although many recognise imported goods are cheap because of the high kiwi dollar, many say they have no money to spend on such things."
