Economic fears has driven consumer confidence to a three year low and the Government is getting the blame, according to a Westpac survey.

The Westpac McDermott Miller Consumer Confidence Index fell slightly from 113.0 in June to 106.0 for the September quarter - the lowest level since 2012.

The number one reason given for pessimism was 'ineffective government economic policy' followed by dairy prices.

Westpac senior economist Felix Delbrück said the last three months had been tough for the economy particularly with Fonterra revising its milk price forecast to below $4 per kilo, and with tremors in the Chinese economy.


"It's not surprising that consumer confidence has fallen sharply," Delbrück said. "Consumers are much less optimistic for the wider economy, and their spending appetites have become more cautious, particularly in rural areas. But if anything, we're surprised that confidence hasn't fallen further."

The survey found that consumers were more optimistic than in 2012 when the eurozone was less stable, and overall spending had remained relatively strong which was consistent with other economic indicators including electronic retail spend. Despite this, Delbrück said he wasn't confident this would last.

"Over the next six months we expect the dairy industry to remain under pressure, unemployment to rise, and tax and lending restrictions to take some of the steam out of the Auckland housing market," he said. "As that occurs, consumer confidence could well fall further, and spending is likely to continue to slow."

Confidence in short-term prospects for New Zealand's economy have also fallen with 15 per cent now expecting bad times over the coming year. Richard Miller, managing director in strategy and economics at McDermott Miller said confidence levels varied between rural and urban areas.

"Reasons for pessimism diverged somewhat between metropolitan and rural consumers expecting bad times," Miller said. "The former are expecting bad economic times because of 'ineffective government economic policy' (29 per cent), followed by 'low dairy prices' (23 per cent). Unsurprisingly, a net 25 per cent of rural consumers expect bad times."