Dairy farmers' income last season, at Fonterra's $8.40 farm gate milk price, was $13 billion, but Westpac's latest $3.70 payout forecast slashes that by 33%, or $4.4billion, to $8.6billion.
Westpac chief economist Dominick Stephens is aligning New Zealand's dairy crisis and its wider effect on the economy with the fading Australian construction and mining booms, which were driven by iron sand exports.
Mr Stephens said in 2014 economic growth in New Zealand had accelerated to 3.3%, due to a 40-year high in terms of trade, the Canterbury rebuild and burgeoning population growth.
However, ''cracks in the facade'' appeared in early 2015, with the economy growing a ''paltry'' 0.2% in the quarter to March, ''lacklustre'' personal consumption data and ''very weak'' business investment spending, he said.
''We expect the economic situation to deteriorate markedly over the second half of 2015 and early 2016, following two major headwinds that have struck the economy,'' Mr Stephens said.
Three months ago, Mr Stephens said the country's economic forecast had changed, with growth having peaked and hikes in the interest-driving official cash rate (OCR) cycle over, but yesterday he said ''we did not go far enough'' in that forecast.
''We have subsequently experienced a ferocious, unexpected, decline in global dairy prices. It's also now apparent that the Canterbury rebuild has levelled off nine months earlier than anticipated and is no longer boosting economic growth,'' Mr Stephens said.
Those ''significant changes'' have prompted a ''significant change'' to Westpac's forecasts.
Mr Stephens is expecting gross domestic price growth to drop from 3.3% to below 2% ''in short order'' and unemployment to rise, from 5.9% in June, to about 6.5%, and the housing market to slow, from 10% house price inflation this year to 4.5% next year.
He forecast ''modest'' GDP recovery from the middle of next year, underpinned by the OCR falling to a record low of 2% and further downward pressure on the strength of the New Zealand dollar, from its present US65c to US62c by early 2016.
Research by brokerage Craigs Investment Partners said the number of mortgagee sales has jumped nationwide in the past quarter as worsening economic conditions and lower dairy payouts hit parts of provincial New Zealand.
Although the annual mortgagee sale figures were down on previous years, for the year to June nearly 700 homeowners lost their properties - including 84 in Auckland.
Nearly 150 people lost their homes in distressed sales in the three months to June 30, compared with just 95 in the first quarter - a jump of more than 50% Craigs said, quoting Harcourts agent and mortgagee specialist David Savery.
''People lose interest in their properties, they lose interest in their lives and the bank senses that, and that's when you have distressed sales,'' Mr Savery said.
In a separate survey yesterday, the ANZ ''truckometer'' suggested weak GDP growth in the second quarter, and that a flat July was not going to be a good start to the third quarter.
ANZ senior economist Sharon Zollner said the truckometer survey reflected an economy ''facing headwinds''.
''Until global dairy prices find a floor, and broader commodity prices too, as a bellwether of China's economic health, all economic forecasts remain a moving target,'' she said in a statement yesterday.
In the survey, heavy traffic flows in July fell on 10 of 11 major roads, while the light traffic flows fell on five of 10 roads.
The heavy traffic index has fallen in six of the last seven months.
