Economic confidence takes dive

People's confidence about the economy is at its lowest level since the 1991 recession as high interest rates, the softening housing market and a slowing economy take their toll.

Consumer confidence fell to 109.3 - the lowest level in 5 years - from 110.1 in the December quarter last year, says the Westpac McDermott Miller confidence survey released today.

The modest fall in the index, following a plunge in the December quarter, belied how weak consumer sentiment really was, said Westpac chief economist Brendan O'Donovan.

"The underlying tone to confidence is markedly weaker," he said.

"With the housing market and consumer sentiment faltering, the outlook for consumer spending is now more bleak than it has been at any time over the past 15 years."

Just 2 per cent of respondents said they were better off than a year ago, down from the 11.7 per cent who three months ago said they were better off.

O'Donovan said the result was surprising, given the strong jobs market and gains people had made through rising house prices.

"It's interest rates having their impact, higher debt levels and higher petrol and electricity prices," he said.

"Tight monetary conditions, a softening housing market and a slowing economy are all taking their toll."

Consumers were more pessimistic about the future of the economy, with a net 20 per cent of respondents expecting it to worsen in the next 12 months.

Only a net 22 per cent expected the economy would be in better shape in five years - the worst result since the 1991 recession.

One of the few bright spots - and the factor that stopped confidence falling more steeply - was that more consumers thought now was a good time to buy a major household item.

This might be because they wanted to buy imported goods before the fall in the dollar took full effect.