The potential for a lower Fonterra payout - at around $4.70 per kilogram which would strip more than $6.5 billion from the economy - have shown through in the latest Westpac McDermott Miller regional economic confidence survey.
Not included in the survey, for the quarter to December, are the worsening drought conditions on the east coast and potential for water restrictions, which could affect production and feed costs.
Westpac senior economist Felix Delbruck said Waikato and Southland, respectively the largest and third-largest dairying areas, saw economic confidence ''crashing down'' for the quarter, on the prospect of a lower dairy payout.
''Consumers in the Waikato and Southland have fallen back into pessimism for the first time since late-2012 and early-2013, when the Waikato was in the grip of drought and Southland was facing the possible closure of the Tiwai Point aluminium smelter,'' Mr Delbruck said.
While the survey was done during the first week of December, Mr Delbruck said yesterday when contacted the possible extent and ramifications from drought effects ''were likely to be in the forefront'' of farmers' concerns.
Nationally, regional economic confidence was down 5%, but in Southland it was down 39% and the Waikato 32%, while Otago was one of four regions in positive territory, up 4% since the September survey, which had been in pessimist territory.
Mr Delbruck said that in Otago, while economic confidence had picked up a little, it remained ''very subdued'' and optimists only just outnumbered pessimists.
''This takes some of the gloss off the improvement we have seen in other economic indicators for the region,'' he said.
He noted Otago's regional unemployment had fallen significantly during the past year, tourist numbers were rising, the population was growing, and both the Queenstown and Dunedin housing markets had shown signs of a post-election lift.
In Canterbury, the country's second-biggest dairying region, economic confidence rose slightly in the quarter, to 5%, and remained the most optimistic in the country by far, Mr Delbruck said.
''Clearly, this is thanks to the ongoing reconstruction boom, though Cantabrians' economic confidence has moderated from the dizzying heights of a year ago,'' he said.
In most other regions, confidence has also lost some of its lustre from six months ago, when much of the country ''seemed to be basking in the prospects of a stellar dairy season''.
While the overall dairy index rose 3.6% in the last fortnightly GlobalDairyTrade auction, it remains more than 50% down on global prices achieved 11 months ago.
