In its quarterly business outlook released on Monday, Deloitte Access Economics said the Australian economy was battling "dual demons" of drought and a weak housing market.

But Deloitte said the Reserve Bank had made the situation out to be far worse than it actually was, because it had "the communication skills of a teaspoon".

As a result, the economy was facing a third threat - crumbling consumer confidence.

"The engine of the Australian economy is in low gear. Yet the economy isn't nearly as bad as public opinion has it," the report said.

"The main reason why the confidence of ordinary Australians is having a Maccas moment (of the Engadine variety) is that the Reserve Bank's efforts to explain itself have caused more harm than good."

Deloitte said there was a big gap between what the Reserve Bank thought it was telling Australians, and what they were actually hearing.

READ MORE:

The RBA had to switch gears last year, after it underestimated the damage the drought and falling housing prices were wreaking on the economy.

After the unemployment rate jumped from 4.9 per cent to 5.2 per cent, it slashed interest rates in an attempt to get wages and inflation moving faster.

The interest rate cuts were to serve a dual purpose - to boost an economy that was weaker, but also different.

A different economy is actually a "mixed blessing", Deloitte said. It meant there were more profits and jobs but less in wage gains.

However Australians had not lived through a period where the RBA was cutting rates for two reasons instead of one, and were interpreting the successive cuts as confirmation that the economy was deteriorating.

This led to consumers saving their pennies rather than spending them, Deloitte claimed.

It also meant stimulus like the Coalition's tax reform package had not had the desired effect.

While the latest data showed disposable income had soared, as both taxes and interest rates were slashed, "families trousered the lot" with consumer spending trundling along "barely above stall speed", Deloitte said.

"Had families spent the usual share of that money, then economic growth would have jumped back up close to trend. But we didn't spend any of it," the report said.

"Consumers burrowed under their doonas and refused to as much peep out. They simply used the extra money to repay their mortgages faster - so fast that mortgage repayments are at a record pace.

"In the past few months the pace at which families are saving has been jumping at much the same rate that it did when the global financial crisis hit."

Consumer confidence had dipped to a four-year low, while a Roy Morgan survey found Australians thought the economy was in its worst shape in over a quarter of a century.

Now the threat facing the economy was not that consumers had an inability to spend, but that they were unwilling too.

"That is so bad - so very bad - that it notably heightens the risk of becoming self-fulfilling," Deloitte said.

"There's a risk that consumers will burrow deeper under the doona in 2020, dragging down economic prospects with them."